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Market Recap – Speculation To Come Around October Fed Meetings

Market Digest – Week Ending 9/18

In the wake of tremendous anticipation, the Fed’s rate decision turned out to be a non-event. The Central Bank left short rates near zero while leaving the door open for an increase later this year. Stocks climbed ahead of the announcement, immediately spiked, and then fell. The S&P 500 finished the week roughly flat, as the perceived positive of low rates for longer was offset by the Fed’s concerns about increasing global economic uncertainty, largely tied to China. Interest rates fell and gold rose.

Weekly Returns:

S&P 500: 1,958 (-0.2%)
FTSE All-World ex-US: (-0.3%)
US 10 Year Treasury Yield: 2.13% (-0.06%)
Gold: $1,139 (+2.9%)
USD/EUR: $1.129 (-0.2%)

Major Events:

• Monday – Malcolm Turnbull unseated Tony Abbot to become Australia’s 4th prime minister in the last two years.
• Tuesday – House Republicans announced a plan to vote on a bill in the coming weeks to lift the nation’s four-decade ban on oil exports.
• Wednesday – Oil prices surged after an unexpectedly large decline in U.S. crude stockpiles.
• Wednesday – Uber rival Lyft formed an alliance with Chinese startup Didi Kuadi to create an international partnership.
• Wednesday – Apple announced a delay in its smartwatch software update.
• Wednesday – FedEx cut its yearly earnings outlook blaming soft demand for freight services.
• Thursday – The Fed left interest rates unchanged while leaving the door open for an increase later this year.
• Thursday – GM admitted to criminal wrong doing and agreed to a $900 million penalty related to mishandling of a faulty ignition switch.
• Friday – Russia moved its first fighter jets to Syria as it increases its role in helping President Assad.

Our take:

Once again, the Fed chose a dovish path and left short term interest rates near zero. Some were surprised that stocks fell as a result. The common media explanation is that investors are nervous the Fed sees slow economic growth. But the Fed doesn’t have particularly better data than everyone else, nor a better skill at interpreting it. So we don’t think much has changed about the global macro picture. China is still a massive unknown, the US is still strong, but may be showing some signs of fatigue. Europe and Japan are stagnating but flash occasional indications for hope.

We’re of the opinion that it doesn’t matter that much when the Fed raises rates the first time. How fast and how far they go in the next few years is more important. One piece of bad news from this week’s decision is that it means we will have to endure endless speculation about the October and December Fed meetings. It is our job to follow this. If it isn’t yours, we suggest ignoring it. Not much in your personal finances will change. If you have a mortgage you are not thrilled about, the opportunity to refinance is now.

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