Noisy Fed

Equities start the day higher after it turns out Jerome Powell is a mediocre communicator. Actually that may be a bit harsh, let me see if I can re-phrase that. Jerome Powell stumbled a bit in his language at yesterday’s press conference but the market is filled with millions of people interpreting his words in a million different ways so the bulk of them thought he sounded hawkish and sold stocks. Ok, if you were hiking in the woods or sitting on a beach the Federal Reserve cut interest rates by 25bps and the market freaked out because it thought this might be the only cut in 2019. Is that Powell’s fault? Maybe, his choice of language was odd (called it a “mid cycle adjustment”). Does it really matter? Not if you’re a smart investor who likes to think about the big picture. This is really all the Fed needed to say “UNCERTAINIES ON OUTLOOK REMAIN, WILL ACT AS APPROPRIATE” yet my man JPow got tripped up by a barrage of questions from eager reporters. Let’s put this all aside and go back to the notion of “big picture”. The economy is churning along (2-3% growth) like it always has, earnings are still growing, people still have jobs, the consumer is still consuming, and the trend of the market is higher. The Fed is now on watch for weakness and guess what, if they need to cut again THEY WILL. Here at BullandBaird we like to 1) educate you on the market 2) have you smile or laugh while reading 3) ignore noise and 4) gain wisdom about life. Yesterday’s overreaction to a Fed meeting feels like it needs to be in #3.

After the open it looked like everything would be fine. We spent the entire first half of the day grinding higher (+1%) as people reconsidered their view that the Fed was muddling its message. Unfortunately right around lunch we heard that the current administration plans on placing additional tariffs on Chinese goods and, well, the market looked like that Price is Right game “Cliffhanger”. In terms of things that can have an outsized impact on daily price movement in 2019 the Fed is #1 and “tariff / trade war talk” is #2 (earnings #3). There’s a few ways to think about stuff like this: either you think the cumulative effects will add up and impact both the economy and the stock market or you think the negative headlines are transitory in nature and possibly serve as a way to dampen investor sentiment (i.e. it’s a huge brick in the Wall of Worry). For now I’m in the second camp, having a Sword of Damocles could be useful in avoiding bubble like conditions (as long as the economy hangs in there). 

We closed down -0.85% and while that sounds somewhat benign it was basically a 2% drop from the highs. Remember how I said this is a seasonally tough period for stocks in my last recap? Yea, throw that tidbit on top of fresh tariffs and a quirky Fed meeting and all of a sudden you have a table set for weakness. That being said, we aren’t day traders or people who freak out about every little thing on this here blog so let’s be patient and see what happens. That being said, strap in for the next few months because not only is this the best time of the year but things could finally get spicy. Did I mention the first college football game of the year is only 23 days away!

News Highlights:

Is this final link dumb? I think it might be but it really cracks me up for some reason. I think I’ve been spending too much time in our IT dept. (you need sound)

Have a good night.