11 Jul Fed Rate Cut Imminent
Stocks accomplished something yesterday that has never happened in history, with the S&P 500 crossing the 3000 barriers. Although they were quickly pushed back beneath this critical level, it now has been shown to be possible. Currently, stocks are trying to make another break above 3000. If Fed President Jerome Powell’s statements to the Senate today continue to be bearish, we could see this happen. The strange part of this is that weak economic news is pushing stocks to achieve new record highs. That is opposite of how the market normally acts. Generally, weak economic data pushes stock prices lower. Given that the weak data is supporting a Fed rate cut, investors are taking this as a short-term opportunity to profit. Eventually, weak data will cause stock prices to fall.
Yesterday’s statements by Chairman Powell essentially guarantee a rate cut coming. At this point, the market has priced in a 100% chance of at least a ¼% cut at the end of the month when the Fed meets next. In fact, it is now likely that the Fed will cut by a full ½%, as the likelihood of that now stands at 58%. This is a crazy reversal from the thoughts and opinions of the Fed and nearly every economist going into 2019. Very few saw this coming, which is truly not a surprise. Most miss the mark when it comes to predicting the economy. In fact, the Fed is nearly always inaccurate. Just look at the past.
Mortgage bonds are right beneath the ceiling. Although they could make a break above this critical level, until this happens, we will maintain a short-term locking bias. However, we continue to see lower rates in the future.