Does the Fed know something investors don’t?
That’s one big takeaway from what some are calling a “bizarre” Fed meeting on Wednesday, which saw Chairman Jerome Powell and fellow policy makers pull another surprise by signaling they expect to see no rate hikes this year.
But take that 180-degree Fed turn with a pinch of salt, advises Naeem Aslam, chief market analyst at ThinkMarkets. In his view, it would “only take a couple of strong economic readings before we see the pressure building up again on the Fed.” So do like Powell says maybe and “be patient and watch and wait to see how things evolve.”
There’s no “sky-is-falling” vibe coming off Guggenheim Partner’s chief investment officer Scott Minerd, who provides a straightforward call of the day with advice on what investors should do now that the Fed has laid pretty much all its cards on the table.
“Inevitably, we’re late in the cycle and a recession looms out there somewhere, and we can all argue about when, but it’s coming and…you’ve had a really good move since 2009. It’s not a bad time to take some profits,” he told Bloomberg in a post-Fed interview Tuesday.
But, like others, he was caught off guard by a more “tempered” Fed. And using the punch bowl analogy — in which it’s the Fed’s job to take it away while everyone’s still having a good time, but before they start jumping into the pool fully clothed — Minerd says the Fed seems to have “returned the punchbowl and encouraged everyone to have a drink.” Read that Bloomberg interview here.
One problem echoed by the Guggenheim CIO is that the Fed’s new stance may allow excesses in the system to build up, such as a highly indebted corporate sector.
“I think this is going to support more of that. We’re going to see more M&A given that corporate debt to GDP is at a record high. We’re still not in a recession, and it typically rises in a recession. I think it’s making the economy more vulnerable,” he said.
Also, companies could face rising labor costs, he said, homing in on one comment Powell made—that rising unit labor costs don’t necessarily have to increase inflation. Higher labor costs invariably pressure corporate earnings, which isn’t good for risk assets, he said.
At times like these, investors need to keep their cool, but they simply trade too much, says Minerd. “They pivot, just like central banks, so nobody can get the timing of this stuff correct. Our basic theory is pick your portfolio based on what will happen in the next five years, put it away and don’t pay any attention to it unless something dramatic is happening to change the long-term view,” he says.
The market
Dow YMH9, +0.92% S&P 500 ESH9, +4.32% and Nasdaq NQH9, +4.72% futures are wobbling without too much conviction. Only the Nasdaq COMP, +0.07% finished with gains on Wednesday, with the Dow DJIA, -0.55% and S&P 500 SPX, -0.29% dropping.
Gold US:GCU8 is the star for Thursday, soaring as the dollar DXY, +0.27% limps, wounded after a Fed-induced beatdown. The yield on the 10-year Treasury note TMUBMUSD10Y, -0.78% is on the move, dropping to 2.514% after hitting the lowest levels in a year on Wednesday. Crude US:CLU8 is slipping.
Read: This recession indicator is closer to flashing red after the Fed’s ‘dovish double-down’
The pound GBPUSD, -0.5230% is also under pressure ahead of a Bank of England’s monetary policy meets this morning, but no change seen as Brexit drama swirls.
Europe stocks SXXP, -0.45% are mixed. Asia stocks also had a jumpy session, with the Hang Seng HSI, -0.85% leading the losers, down 0.9%.
The chart
They’re calling it “feemageddon.”
Fees charged by U.S. equity funds hit a fresh record low in 2018, according to data from the Investment Company Institute, the Financial Times reports, which brings us to our chart of the day below that lays out that decline. The drop is, of course, due to the increasing popularity of exchange-traded and other index funds that track the big gauges. The average expense ratio fell to 0.55% in 2018 from 0.59% in 2017, the report said. Asset managers were charging nearly double that around the year 2000. Expense ratios reflect the operating costs of running those funds.
The buzz
Levi LEVI, +0.00% shares will begin trading on the NYSE Thursday, selling 36.7 million shares for $17 each, valuing the company at about $6.5 billion. But it’s worth reading up before you invest. For example, a dual-class share structure means the Levi family has a big say incorporate matters.
So basically, here is an iconic apparel company that will start off with a $6 billion valuation DAY ONE and roughly $160 million in cash, some legacy debt. No shareholder buying into the deal will have any say over how they run it.
This is America, take it or leave it.
— Downtown Josh Brown (@ReformedBroker) March 20, 2019
Fellow jeans maker Guess GES, -2.00% is tanking after an earnings miss and disappointing forecast. There was better news from retailer Williams-Sonoma WSM, +0.19% Calvin Klein apparel maker GII GIII, -1.04% and Olive Garden parent Darden Restaurants DRI, -1.56%
DRI, -1.56% Biogen BIIB, -0.98% , meanwhile is down sharply after ending late-stage trials for an Alzheimer drugs.
Taking some by surprise, CVS Health CVS, -1.63% says it will start selling products with a derivative of marijuana, even though it’s still not legal in all states. Meanwhile, CBD Easter candy is here.
Micron MU, -0.59% delivered downbeat results late Wednesday, but markets are applauding its decision to reduce some chip manufacturing amid an industry glut.
Boeing BA, +0.73% may have received another blow with news the FBI has reportedly joined a probe into the certification of its 737 Max, involved in two fatal plane crashes over the past few months.
Facebook FB, +2.40% admits its AI tools at first failed to catch the live video of the New Zealand mosque massacres, but it pushed back against a time-delay on such streams. Meanwhile, less than a week after that deadly attack, that country’s government has banned semiautomatic and automatic weapons
Prime Minister Theresa May will be working an EU summit to try to get leaders to agree to an extension to Brexit, now days away, so that she can get her twice-failed deal across the line. For its part, the EU has said no extension unless U.K. passes her withdrawal deal.
Brexit Brief: EU tells Theresa May — it’s deal, or no deal
The economy
Jobless claims and the Philly Fed index are both due ahead of the market open, followed by leading indicators.
The stat
$100 million — That’s how much Epic Games, home to the wildly popular ‘Fortnite’, is offering up in grants to help other developers, teachers and students create games or media and entertainment using its Unreal Engine 4 toolset, and with no strings attached.
Random reads
Less than a week after deadly attack, New Zealand bans semiautomatic and automatic weapons
Website for U.K. petition to cancel Brexit crashes after more than a half a million sign up.
Lawsuit alleges Harvard University profited off early slave photos for years and a descendant wants them back.
Add hot tea to the lost list of things that cause cancer
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