Since Janet Yellen didn’t have a press conference this time, Wall Street had to rely on the post-meeting statement. It acknowledged diminished risks to the U.S. economy, including stronger job growth and robust consumer spending.
So no rate hike today, but the Fed left the door open to raising rates before the year-end, which financial markets had all but ruled out.
The markets traded all over the map after the news, but the most noteworthy development may be that bond yields fell sharply anyway. Gold also rallied by around $20 an ounce. Those are reactions you wouldn’t expect to see in the face of a hawkish Fed.
Does that mean investors are saying the Fed is just crying wolf? That any additional hikes will weaken the economy in the long run? We’ll just have to wait and see. But it definitely caught my eye.
The meeting comes amid mixed economic data worldwide – with lousy news in Europe and the U.K., and somewhat better figures here in the U.S. Readings on new home sales and consumer confidence yesterday topped forecasts, for instance.
But businesses are still reluctant to open their wallets, according to this morning’s report on durable goods orders. Overall orders plunged 4% in June, the biggest drop in almost two years and almost triple the 1.4% decline economists expected. Ex-transport orders fell 0.5%, compared with an expected 0.3% rise, and a gauge of core business orders inched up just 0.2% after dropping 0.5% in May.
Investors have been willing to ignore pesky fundamentals like that lately because they’re expecting governments to open the fiscal spending spigot. On that front, Japanese Prime Minister Shinzo Abe revealed overnight that his country is contemplating a 28-trillion-yen stimulus package. That’s equivalent to around $265 billion.
|No hike from Janet Yellen and the Fed, but the door is open for one later this year.|
But look behind the headline number, and you see there’s not much meat on the bones. That figure is spread out over a period of years, for instance, rather than front-loaded in the here and now.
It also includes a mix of previously announced plans … “soft dollar” programs like loan guarantees rather than “hard dollar” spending on new bridges, roads, and other things … and other less-than-inspiring measures.
And let’s face it: Japan has launched umpteen stimulus packages over the years, including a 20-trillion-yen effort in 2013 and an 18-trillion-yen program in 2014. And they haven’t kept the economy from slipping in and out of recession for the better part of the last couple of decades.
|“It doesn’t negate the underlying cyclical forces I’ve been talking about.”|
So the way I see it, you can play a stimulus bounce in the short term if you want. But it doesn’t negate the underlying cyclical forces I’ve been talking about for some time, and which remain a key issue for investors over the long term.
Now I’d like to hear what you think of the news out of the Fed and Japan. Why did the Fed do and say what it did? Does that change your outlook for the markets? How about the latest fiscal spending measures in Japan? Are they a game-changer, or just another “nothing burger”? Hit up the comment section and weigh in when you get a chance.
Until next time,
The separation of traditional banks from investment banks … and the potential for a market top … were two key topics you discussed online in the last 24 hours.
Reader Chuck B. said: “It is interesting that both political parties have begun to realize the dangers of letting deposit banks go into investing, and, in effect, play with depositors’ money. That is how so many banks failed in the early days of the Great Depression.
“Can it lead to a perhaps greater depression now? That would not be surprising, if allowed to continue. It remains to be seen what the politicians will actually do with a Glass-Steagall, redux. Each party will have its own take on the details.”
Reader Ron R. weighed in too, saying: “It’s time to reinstate Glass-Steagall and get the banks out of the speculative derivatives they’ve been playing with for over 15 years. Thanks to their manipulations in the market, we had the 2008 recession and now face a bigger collapse this year caused by them. I worked for Citibank in the 1960s, before it became a manipulator of the markets like so many other banks have become.”
As for the markets, Reader Old Bullfrog said: “At every market top the bulls acknowledge the fact that stock valuations are in La-La Land, but also claim it’s okay because ‘This time it’s different.’ We are now approaching that point in time folks. The worse the earnings, the more the stocks go up, because of the rationalization that that the bad news is now behind us, while the future can only be better.”
And Reader Dave S. said: “Soros, China, Russia and the big banksters have purchased over $500 billion in gold and silver in the last 18 months. What do they know that we don’t? Our politicians and Wall Street keep telling us all is fine. Not hardly.”
I appreciate you taking the time to share your thoughts. We have quite the stew of factors out there in the markets, all pulling stocks in different directions. Central bank funny money. Fiscal stimulus in Asia. Mixed corporate earnings. Extreme complacency and low volatility.
My best advice is to “Play small” with positions and see whether the recent breakout holds. I’m skeptical, and continue to favor positions that have strong Weiss Ratings and that can prosper in almost any economic backdrop. Agree? Disagree? Let me hear about it.
In one of the most closely watched reports this earnings seasons, Apple (AAPL) said fiscal third-quarter profit slumped to $7.8 billion, or $1.42 per share, from $10.7 billion, or $1.85 per share, in the year-ago period. Revenue fell 15% to $42.4 billion. But the shares rose as iPhone sales came in slightly better than expected, services revenue rose a hefty 19%, and executives said conditions should improve going forward.
Elsewhere in tech-land, the chipmaker Analog Devices (ADI) said it would buy rival Linear Technology (LLTC) for $14.8 billion in cash and stock. The deal is just the latest of several M&A transactions in the semiconductor industry.
The carnage continues in the European banking sector, with troubled Deutsche Bank (DB) reporting a whopping 98% year-over-year decline in profit in the most-recent quarter. Revenue dropped 20%, with securities trading and sales falling sharply and with restructuring problems and costs weighing on overall results.
Former-President Bill Clinton took to the stage in Philadelphia last night, calling his wife Hillary a “change maker” who America should put into office. His speech at the Democratic National Convention preceded Hillary’s acceptance speech, which is slated for Thursday.
What do you think about the news from Apple, or earnings announcements from other key tech and industrial bellwethers? How about the ongoing slump in European bank shares? Did you watch the Clinton speech, and are you looking forward to hearing from Hillary? Let me hear your thoughts below.
Until next time,