Yesterday’s Federal Reserve Open Market Committee meeting concluded with Fed Chairman Powell setting the stage for a rate cut in the months to come. Not only is one cut now expected, many Fed members see at least three in the future. This once again brings up the question as to how the Fed was so far off in their December statement when the Fed members were estimating three rate hikes in 2019! Time and time again, the Fed continues to miss the market and overshoots the target. This adds another bad mark to the Fed’s accuracy in predicting the longer-term state of the US economy and should also cause others to question whether there will be a recession in the months to come. Prepare for it. I continue to believe one is coming.
As I expected, the US stock market is now once again in unchartered waters, setting new record highs. This rally has been spurred by hopes of the Fed cutting interest rates, which will add some financial relief to US businesses. It brings up the question as to how poor economic news can push stocks to reach new highs. Clearly, poor economic news is not a good sign for US companies and should be driving stock prices lower. There is very little common sense happening in the stock market. Eventually, this will catch up and cause stocks to fall sharply. It will all come together as the US slips into a recession. I predict that many investors will get caught with their pants down.
I see great risk in floating right now. The bond market has had a technical rally that I believe is stronger than it should have been. I continue to believe that rates will fall in the longer term. However, we may see a bit of a pullback in the short run. With mortgage interest rates at multi-year lows, let’s be careful right now. If you need to lock soon, now is a great day to do so.