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What’s left for the Federal Reserve to do at its rate-setting gathering next week now the U.S.’s main stock indexes are on the cusp of records again ?
The Federal Reserve meeting is scheduled for September 17-18. At its last policy meeting in July, the Fed lowered rates by 25 basis points.
OUTSIDE THE BOX You’ve probably already heard about the FIRE movement. FIRE stands for financial independence, retire early. Usually, the people who follow it are in their 20s and 30s and saw what happened to the economy in 2008 and have decided to put saving above all else in a bid to free themselves from worry.
President Trump’s suggestion to cut interest rates to zero or below could have some unpleasant effects for people who are close to, or in, retirement. Negative interest rates have a harrowing impact on cash. Banks already offer a relatively low interest rate to consumers in exchange for stashing their money in a savings account, and the interest they incur on their savings would only go lower if rates were cut.
Dow Jones giant Walmart and Lululemon Athletica are in buy zones, while TJX, eBay and Zumiez are just below buys as retail stocks lead.
(Bloomberg) -- Another rate cut from the Federal Reserve is all but certain. Its impact on the stock market, however, is the topic of frantic debate.In the bear camp are Bank of America Corp. and Morgan Stanley, whose strategists warned against relying too much on lower rates to boost stocks. In separate research, they reached the same conclusion after studying the historic relationship between Treasury yields and the S&P 500’s price-earnings ratios. That is, when rates go down too much, it hurts equity valuations.Ned Davis Research, on the other hand, offered a brighter assessment by focusing on a favorable market pattern following the second rate cut of a cycle, as is the case now.Getting it right has become an urgent matter for investors who have watched the S&P 500 rally 20% this year, with almost all the gains coming from an expansion in price multiples. Profits are barely growing, but stocks have rebounded from last year’s selloff after the Fed put a brake on rate hikes.Rate cuts can clearly bolster stocks in some circumstances. When they don’t is when the economy is in trouble -- and easy monetary policy almost always comes at times of trouble. When yields undercut a certain threshold, Morgan Stanley and BofA pointed out, equity multiples tend to shrink.“You can’t just depend on the Fed to lower interest rates to spur this bull market further,” Rich Weiss, chief investment officer of multi-asset strategies at American Century Investments in Mountain View, California, said by phone. “The fundamentals have to be there for additional highs on the stock market. They just aren’t there.”BofA and Morgan Stanley found different yield levels that historically switched from being good to bad for valuations. Savita Subramanian at BofA pointed to 10-year Treasury yields below 4%, compared with the current level around 1.9%. Mark Cabana, the firm’s rate strategist, said in a note earlier this month that the market expects the Fed to lower interest rates about five times by early 2021 and the likelihood for zero or negative interest rates is rising.“An ultra-low or negative rate environment is not necessarily supportive of stocks,” Subramanian wrote in a note last week. “The path to 0% would be accompanied by a significant deterioration in the growth outlook. That doesn’t bode well for P/E multiples.”Look at Germany, she suggested. Yields on the country’s 10-year bund have slipped to minus 0.7% from 4.9% since 2010. And price-earnings multiples for the stock market have been flat, hovering near 13.At Morgan Stanley, Mike Wilson examined real yields, the extra payment from 10-year Treasury above inflation. Currently, they sit in a range between minus 0.5% and zero, a place where further drops historically entail a decline in P/Es.“Falling rates are only a positive for equity valuations to a point,” said Wilson. “We’re passing the point.”Consider the last rate cut, he said. When the Fed lowered rates for the first time in a decade on July 31, the S&P 500 dropped 1.1% and then continued to decline the following month. At Friday’s close just above 3,000, the equity benchmark wasn’t far from the level seen the day before the rate move.But a second rate cut has tended to herald a more favorable reaction from stocks than the first, according to Ned Davis Research, which studied market performance and easing cycles in the past century.Perhaps it’s because doubts about the Fed’s commitment ease, or liquidity from the first one works through the system. Whatever the reason, the Dow Jones Industrial Average has jumped an average 9.7% three months after the second cut.“The good news for the bulls, from a historical perspective, is that a reduction next week would mean that a one-and-done cut is off the table,” Ed Clissold, chief U.S. strategist at Ned Davis, wrote in a note last week. “Two is better than one.”To Kevin Miller, chief investment office at E-Valuator Funds, the Fed’s influence on the U.S. market has weakened after Chairman Jerome Powell started considering global developments in policy making.“He doesn’t have to do something for the economy, but he does have to keep an eye on what’s happening globally and stay somewhere in line with where global rates are,” he said. “I don’t see a huge sell-off in the market if they lower by a quarter. Likewise, I don’t see a huge gain. It’s going to be more driven by what we’re hearing on a potential trade agreement” between the U.S. and China, he added.To contact the reporters on this story: Tatiana Darie in New York at email@example.com;Lu Wang in New York at firstname.lastname@example.orgTo contact the editors responsible for this story: Jeremy Herron at email@example.com, Chris NagiFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
FIRE refers to the “financial independence, retire early” movement bubbling up in the younger generation these days as a pathway out of the grind — slash expenses, save a bundle and enjoy the freedom that approach ultimately allows. Using the name FluffayPenguin, one anonymous thirtysomething took to Reddit to illustrate his FIRE blueprint, which allowed him to graduate college in 2008 and build a small chunk of change all the way up to $930,000 in savings.
The U.S. and China are trying to tone down trade tensions, the Federal Reserve is ready to cut interest rates and Americans are still spending plenty of money. So all is well again with the U.S. economy, right? Not so fast.
Jeffrey Gundlach on Thursday struck a pessimistic tone, saying there was a 75% chance of a recession before the next election as he warned the corporate bond market was a crisis waiting to happen.
In trading Friday, yields on Uber bonds fell as low as 7.291%, a day after the debt offering saw $2 billion of investor demand.
The family of Chairman Emeritus Leonard A. Lauder, one of Estée Lauder’s sons, sold $392 million in shares of the upscale cosmetics firm on Sept 4.
DEEP DIVE Growth has beaten value in the stock market for many years. But if you are feeling uncertain about the market — the trade standoff, Brexit, the health of the European Union, the threat of a recession and years of unprecedented stimulus by central banks — it may be time for you to diversify or consider a value-oriented strategy.
Andrew Sheets, chief cross-asset strategist at Morgan Stanley, who says the global economy may be about to surprise the world and investors are not ready for it.
Monetary policy has been eased and forward guidance has been strengthened via an open-ended QE [quantitative easing] program. The market implications from today’s measure will be dominated by the trend in global growth, something out of the ECB’s control.
Software stocks in the S&P 500 have fallen more than 4% since late July. Adobe results on Tuesday offer investors a chance to reassess the group.
Hedge fund Elliott Management is unlikely to prompt big asset sales or a management shake-up. But its involvement is good for investors.
The iShares 20+ Year Treasury Bond exchange-traded fund dropped 6.2% this week. That is the steepest decline since its 7.4% decline the week of Nov. 11, 2016, when the outcome of the U.S. presidential election took markets by surprise.
Jim Chanos, the founder and president of Kynikos Associates, is a long-time short-seller of Tesla stock. Tesla stock has fallen 17.5% in the last year.
(Bloomberg) -- One of Wall Street’s biggest equity bears just capitulated as stocks approach record highs.Tobias Levkovich, Citigroup Inc.’s chief U.S. equity strategist, raised his year-end target for the S&P 500 to 3,050 from 2,850, going from the fourth-bearish among Wall Street prognosticators tracked by Bloomberg to one of the few who still see gains for the rest of 2019. The new target represents a 1.4% increase from Friday’s close.His optimism is built on a scenario where a glut of supply has dwindled, setting the stage for a recovery in production. Industries such as semiconductors have suffered profit declines amid excessive inventory, and earnings among S&P 500 companies are expected to fall 3% in the third quarter before rebounding to a growth pace of 3.8% in the fourth, analyst estimates compiled by Bloomberg showed.“A required inventory correction is ending, with production likely to pick up modestly just to meet end-market demand,” Levkovich wrote in a note to clients. “As a result, 4Q19 earnings estimates may not need additional trimming.”Stocks just finished a third week of advances, lifting the S&P 500 above 3,000 for the first time since July. Shares bounced back from an August sell-off as the U.S. and China agreed to start trade talks and major central banks around the world continued to easy monetary policy.Strategists have been forced to catch up to a rallying market that has pushed the S&P 500 up 20% this year. Based on the last Bloomberg survey, all but six of the 21 strategists have seen the benchmark exceed their year-end targets. In July, David Kostin at Goldman Sachs raised his forecast by 100 points to 3,100.While shares have gone up, investor sentiment is far from bullish. In fact, Citi’s Panic/Euphoria Model recently showed near-panic readings. The rotation from growth and defensive stocks to value is likely to continue, helping drive the market in coming months, according to Levkovich.“An overshoot to 3,150 is possible,” he said. “Client pushback against shifting away from growth and defensives is quite firm, intimating existing portfolio positions, with a potential continuation of this kind of rotational ‘pain trade.”’\--With assistance from Vildana Hajric.To contact the reporter on this story: Lu Wang in New York at firstname.lastname@example.orgTo contact the editors responsible for this story: Brad Olesen at email@example.com, Richard RichtmyerFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Stocks ended Friday largely flat despite more positive news on trade. China said it would exempt some U.S. farm products from increased tariffs. President Donald Trump also hinted that he might consider an interim deal with China.
Investors could buy the bank’s October $29 call options that expire on Oct. 25. The trade positions investors at the forefront of potentially favorable events and lets them take advantage of cheap implied volatility.
The S&P 500 ended the day down slightly on Friday but less than 1% below its all-time high as a drop in Apple stock countered cooling U.S.-China trade tensions. All three major U.S. stock indexes posted their third straight weekly gains, capping a week that saw signs of a potential thaw in the trade war between the world's two largest economies, which has gripped markets for months.