The Market is Asking, “How low can the Fed go”?


With US-China trade tensions having roiled financial markets, investors are counting on support for stocks coming from a Fed willing to keep cutting interest rates to help the US economy avoid a severe downturn.

A 1/4th pt rate reduction is expected when the FOMC issues its next policy statement this coming Wednesday, which would be the Fed’s 2nd such cut after lowering rates in July for the 1st time since Y 2008. That puts the market’s focus on clues about how much further the Fed will go.

If the Fed gives forward guidance that suggests less than what the market is thinking, then you will probably see markets sell off.

“So long as the Fed plays along with what markets are pricing in…I think markets will be very stable.”

The Fed’s 180-degree pivot from tightening monetary policy last December to easing it has helped drive the stock market’s overall strong performance in Y 2019. The benchmark S&P 500 has climbed 20% YTD, and is near all-time highs.

The Fed in July cited signs of a global slowdown, simmering US-China trade tensions and a desire to boost too-low inflation as it lowered borrowing costs.

Markets are pricing in a near 90% probability that the Fed will shave another 1/4 pt from its current overnight lending rate of 2.00% to 2.25%, according to the CME Group’s FedWatch tool.

And there is a roughly 65% probability that the Fed makes at least 1 more 1/4 pt cut by the end of the year, according to FedWatch.

The market is going to want to see a focus that we have a cut and there is likely more coming. They want to know that the Fed is vigilant and will act aggressively if needed.

We believe that President Trump will see to that.

Friday, the major US stock market indexes finished at: DJIA+37.07 at 27219.50, NAS Comp -17.75 at 8176.75, S&P 500 -2.18 at 3007.39

Volume: Trade on the NYSE came in at 819-M/shares exchanged.

  • NAS Comp +23.2% YTD
  • S&P 500 +20.0% YTD
  • DJIA +16.7% YTD
  • Russell 2000 +17.0% YTD

HeffX-LTN’s over all technical outlook for the major US stock market indexes is Bullish at the week ended 13 September 2019.

Have a terrific weekend