Yesterday, I said markets would be intensely focused on central banks. Today, the Federal Reserve took center stage and weighed in with its take on the economy and policy.
Market Roundup
Since Janet Yellen didn’t have a press conference this time, Wall Street had to rely on the post-meeting statement. It acknowledged diminished risks to the U.S. economy, including stronger job growth and robust consumer spending.
So no rate hike today, but the Fed left the door open to raising rates before the year-end, which financial markets had all but ruled out.Â
The markets traded all over the map after the news, but the most noteworthy development may be that bond yields fell sharply anyway. Gold also rallied by around $20 an ounce. Those are reactions you wouldn’t expect to see in the face of a hawkish Fed.
Does that mean investors are saying the Fed is just crying wolf? That any additional hikes will weaken the economy in the long run? We’ll just have to wait and see. But it definitely caught my eye.
The meeting comes amid mixed economic data worldwide – with lousy news in Europe and the U.K., and somewhat better figures here in the U.S. Readings on new home sales and consumer confidence yesterday topped forecasts, for instance.
But businesses are still reluctant to open their wallets, according to this morning’s report on durable goods orders. Overall orders plunged 4% in June, the biggest drop in almost two years and almost triple the 1.4% decline economists expected. Ex-transport orders fell 0.5%, compared with an expected 0.3% rise, and a gauge of core business orders inched up just 0.2% after dropping 0.5% in May.
Investors have been willing to ignore pesky fundamentals like that lately because they’re expecting governments to open the fiscal spending spigot. On that front, Japanese Prime Minister Shinzo Abe revealed overnight that his country is contemplating a 28-trillion-yen stimulus package. That’s equivalent to around $265 billion.
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| No hike from Janet Yellen and the Fed, but the door is open for one later this year. |
But look behind the headline number, and you see there’s not much meat on the bones. That figure is spread out over a period of years, for instance, rather than front-loaded in the here and now.
It also includes a mix of previously announced plans … “soft dollar” programs like loan guarantees rather than “hard dollar” spending on new bridges, roads, and other things … and other less-than-inspiring measures.
And let’s face it: Japan has launched umpteen stimulus packages over the years, including a 20-trillion-yen effort in 2013 and an 18-trillion-yen program in 2014. And they haven’t kept the economy from slipping in and out of recession for the better part of the last couple of decades.
| “It doesn’t negate the underlying cyclical forces I’ve been talking about.” |
So the way I see it, you can play a stimulus bounce in the short term if you want. But it doesn’t negate the underlying cyclical forces I’ve been talking about for some time, and which remain a key issue for investors over the long term.
Now I’d like to hear what you think of the news out of the Fed and Japan. Why did the Fed do and say what it did? Does that change your outlook for the markets? How about the latest fiscal spending measures in Japan? Are they a game-changer, or just another “nothing burger”? Hit up the comment section and weigh in when you get a chance.
Until next time,
Mike
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The separation of traditional banks from investment banks … and the potential for a market top … were two key topics you discussed online in the last 24 hours.
Reader Chuck B. said: “It is interesting that both political parties have begun to realize the dangers of letting deposit banks go into investing, and, in effect, play with depositors’ money. That is how so many banks failed in the early days of the Great Depression.
“Can it lead to a perhaps greater depression now? That would not be surprising, if allowed to continue. It remains to be seen what the politicians will actually do with a Glass-Steagall, redux. Each party will have its own take on the details.”
Reader Ron R. weighed in too, saying: “It’s time to reinstate Glass-Steagall and get the banks out of the speculative derivatives they’ve been playing with for over 15 years. Thanks to their manipulations in the market, we had the 2008 recession and now face a bigger collapse this year caused by them. I worked for Citibank in the 1960s, before it became a manipulator of the markets like so many other banks have become.”
As for the markets, Reader Old Bullfrog said: “At every market top the bulls acknowledge the fact that stock valuations are in La-La Land, but also claim it’s okay because ‘This time it’s different.’ We are now approaching that point in time folks. The worse the earnings, the more the stocks go up, because of the rationalization that that the bad news is now behind us, while the future can only be better.”
And Reader Dave S. said: “Soros, China, Russia and the big banksters have purchased over $500 billion in gold and silver in the last 18 months. What do they know that we don’t? Our politicians and Wall Street keep telling us all is fine. Not hardly.”
I appreciate you taking the time to share your thoughts. We have quite the stew of factors out there in the markets, all pulling stocks in different directions. Central bank funny money. Fiscal stimulus in Asia. Mixed corporate earnings. Extreme complacency and low volatility.
My best advice is to “Play small” with positions and see whether the recent breakout holds. I’m skeptical, and continue to favor positions that have strong Weiss Ratings and that can prosper in almost any economic backdrop. Agree? Disagree? Let me hear about it.
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In one of the most closely watched reports this earnings seasons, Apple (AAPL) said fiscal third-quarter profit slumped to $7.8 billion, or $1.42 per share, from $10.7 billion, or $1.85 per share, in the year-ago period. Revenue fell 15% to $42.4 billion. But the shares rose as iPhone sales came in slightly better than expected, services revenue rose a hefty 19%, and executives said conditions should improve going forward.
Elsewhere in tech-land, the chipmaker Analog Devices (ADI) said it would buy rival Linear Technology (LLTC) for $14.8 billion in cash and stock. The deal is just the latest of several M&A transactions in the semiconductor industry.
The carnage continues in the European banking sector, with troubled Deutsche Bank (DB) reporting a whopping 98% year-over-year decline in profit in the most-recent quarter. Revenue dropped 20%, with securities trading and sales falling sharply and with restructuring problems and costs weighing on overall results.
Former-President Bill Clinton took to the stage in Philadelphia last night, calling his wife Hillary a “change maker” who America should put into office. His speech at the Democratic National Convention preceded Hillary’s acceptance speech, which is slated for Thursday.
What do you think about the news from Apple, or earnings announcements from other key tech and industrial bellwethers? How about the ongoing slump in European bank shares? Did you watch the Clinton speech, and are you looking forward to hearing from Hillary? Let me hear your thoughts below.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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Hardly a day goes by anymore when I do not encounter some bit of news that sends my heart sinking into my stomach. It’s usually not financial news, but sometimes – like today – it is.
I’ve been hearing assertions lately that Deutsche Bank is troubled, and just learning here that its sales and earnings are down, respectively, by 20% and 98% from a year ago has me troubled too. We know in the rough-and-tumble world of commerce that sort of thing sometimes happens – but it’s sure not something I like to hear about one of the world’s largest banks.
I remember how nice it once was to feel like your deposits at the bank were close to unshakeable – sigh.
unfortunately our country is so debt heavy if we have a period like 2008 lots of people will go down with the “titanic” the country. our whole nation is run on credit and so easily obtained even my basset hound got a credit card with a $1000. line of credit, i wonder how he will sign it, ” WHAT’S IN YOUR WALLET”
Steve
True and if rates went back to Normal interest on that debt would exceed 1 Trillion dollars per year ! Unsustainable !
Events seem to be coming to a head, Europe is looking like it is going to start the ball rolling down hill, Either Deutsche Bank or one of the Italian banks could start the leg down for the indexes, I imagine that all will blame the UK for leaving the EU, for starting the tumble south but for my money this has been boiling since the last big bang in 2008. The world is a huge social and economic mess at the moment. and I do not see it changing for at least ten years.
Make the rules and penalties apply personally to the executives who are making the decisions, and not to the company as an entity. They will be a lot more careful of flagrant abuses of the laws. Also hold the politicians and government officials accountable and enforce it.
Yellen will be gone when Trump is elected President.
Trump should replace her with someone who will normalize interest rates as Trump puts pro growth policies into effect .
The two prong approach will make America the envy of the world as far as the economy .The Federal Reserve is out of ammo as they say .
I’m surprised that they didn’t have Bill Cosby introduce Bill Clinton last night.
After all, if Billy Boy can molest untold women and then address the country in prime
time, then Bill Cosby should be forgiven, too.
I’m going to wash my hair instead of listen to her dirt
IMF announcement Deutsche bank most high risk bank ,failing 2 internal stress tests and results pending from a third American formulated test TBA shortly . May explain Gold up $20
Bill Clinton should know some thing about a Darn good woman Hes known a few . Rigged
I still believe the Italian Banks will be the first Domino to Fall and other banks including Deutsche Bank will fall in short order . I Hope I am wrong but it doesn’t look Hopeful !
Hi Mike
Many years ago economists and the media looked to business leaders for expansion programs, joint ventures, employment statistics, forecasted earnings and mergers etc. Now when the fed holds its breath its either good or bad news. We use to have an economy built on growth, marketing of ideas, forward projections on trade, job growth and statistics from government sources that were reliable. Now we want to know whether Janet is going to cough or sneeze. So where do you put your money now in a no interest rate environment?
One party is offering more of the same while spending other people’s money to get there. The other party is looking for a new direction and change. Either way debt and defaults are going to catch up with us. It will be an interesting ride I have never been on before.
We are running out of Other Peoples Money so the new direction looks good about now !
Japan has been at this ultra-low interest rate thing for over 20 years – with little to show for it. Is this our future?
I am not at all looking forward to anything the Clintons have to say. I would like to know how both she and Bill are never prosecuted for their crimes. He is a serial rapist and she is or has been involved in so many bad things. A vote for her is like voting for the Antichrist.
It’s difficult to believe that any of these politicians now convening have any real knowledge of the economy when all they seem to do is spend more trillions on trivia. It’s hardly surprising that the Fed had little to say about money matters today when everyone is holding onto purse-strings until after the coming election.
From Other Developments of the Day: Former-President Bill Clinton took to the stage in Philadelphia last night, calling his wife Hillary a “change maker†who America should put into office.
Is that Slick Willie’s way of putting in a dig at Obama? After all, why would Wild Bill be emphasizing “change making,” if he were happy with the last eight years of the Obama regime!?
How China operates
Sichuan coal in China defaulted on a June bond payment and suddenly things take a U turn. The last sentence is of particular interest. All this does is create a false sense of security among Chinese investors and all investors. If a company falls on its keister the government will pick it up until the government feels it no longer wants to prop them up. As the statement says demand for high yield securities is increasing and the government is singing investors a lullaby.
Sichuan Coal Industry Group LLC, based in the southwestern province of Sichuan, said it transferred all the money to a custodian agency Wednesday, according to a statement on Chinamoney website. The funds include 1.057 billion yuan ($159 million) for principal and interest and 9.325 million yuan for a penalty fee, the statement said.
Chinese companies’ bond defaults have declined amid signs that local governments are helping prevent nonpayments to avoid regional financial risks. Demand for high-yield securities is rising as no firm has reneged on debt obligations this month for publicly issued notes, compared with one in June and five in May.
The statement said the company raised money through “multiple channels†after “many difficulties,†but it didn’t specify where the funds are from(Take a guess where they came from).
Your term a nothing burger describes it.
These stimulus packages should be aimed at the Pigs countries in the EU, Portugal, Ireland, Greece, Spain. Countries are better off in the EU than out of it.
How can the economy be said to be “stable” when its health is so dependent on whether or not the Fed MAY raise the interest rate a mere 1/8 or 1/4 percent??
i am down to one DOG news from apple sounds error with others big drop ahead
Let’s see: Listen to an habitual liar, who is the most ethically challenged presidential candidate in history, or rearrange my sock drawer?
It’s not even close!
Fed talk is aimed at the elections, Fed inaction is aimed at the elections; and never the twain shall meet.
A recent poll showed 22.3 pct of voters for Hillary, 24 pct for Trump, 52.6 pct want neither.
Libertarians looking better all the time.
I WANT NEITHER MYSELF BUT HILLARY IS THE WORST SO OUR OPTIONS ARE VOTE FOR TRUMP OR STAY HOME