Investment Commentary – September 3, 2019

Year to Date Market Indices as of Market Close September 3, 2019

• Dow 26,118 (11.96%)
• S&P 2,906 (15.93%)
• NASDAQ 7,874 (18.67%)
• Gold $1,556 (21.13%)
• Oil $53.96 (17.79%)
• Barclay Bond Aggregate (9.10%)
• All World Index (12.02%)
• Fed Funds Rate 2.25 (-0.25 rate cut 7/31/19)
• US Real GDP Growth 2.0 Q2/2019 (Down from 3.1 in Q1)

Fed’s Rosengren: ‘Headline grabbing’ market swings this summer obscure fact that economy remains ‘relatively benign’

No need for immediate interest-rate cut unless economy weakens, Boston Fed President says

Boston Fed President Eric Rosengren on Tuesday said “headline grabbing” market swings this summer obscure the fact that U.S. economic conditions remain “relatively benign.”

Rosengren, one of two Fed officials who voted against the Fed’s July interest-rate cut, indicated he wasn’t too concerned about the one-day 800-point drop in the Dow Jones Industrial Average DJIA, -1.08% in mid-August or the “inverted yield curve” in the bond market.

When yields on the 10-year Treasury note are lower than rates on shorter-term securities, this is called an “inverted” yield curve. In the past, it has been a reliable indicator of depressed economic conditions. Many Fed officials think it remains a good signal.

In a speech at The Leo J. Meehan School of Business at Stonehill College, Rosengren said he was giving less credence to the inverted yield curve this year because it was the long end of the curve that was moving lower. Long-term rates are controlled by the market, he said.

In years past, it has been short-term end of the curve, where rates are controlled by the Fed, that has inverted, as rates get pushed higher by the central bank worried about inflation in a strong economy.

The Boston Fed president said he thought it was “plausible” that the depressed 10-year Treasury rate this year is due more to weakness among U.S. trading partners than fears about the domestic U.S. economy.

He also noted that stocks remain robust despite the rocky summer.

“Recession concerns do not seem to be reflected in the current pricing of stocks,” he said.

Markets were also reacting to significant risks from trade tensions, he said.

Around the web

Comeback rally: The major U.S. stock indexes surged around 3%, snapping a string of four negative weeks in a row. Stocks were lifted by indications that the United States and China may be able to salvage some sort of agreement on trade despite the recent escalation in tensions.

August anxiety: Although stocks recovered positive momentum late in the month, August brought a sharp turnaround from the prior two months’ strong results. The major U.S. indexes fell around 2% to 3%, and August produced 4 of the 10 most volatile trading days year to date.

Consumer resilience: U.S. consumer spending continues to be a bright spot amid a weakened global economic outlook and recently soft U.S. manufacturing data. Consumer spending recorded a 0.6% gain in July relative to June, with the rate of growth picking up from previous months.

Moving in lockstep: Through most of August, the sectors that make up the U.S. stock market rarely moved in different directions. Through Wednesday, the S&P 500’s 11 sectors had either risen or fallen together during 11 trading sessions. That’s the highest number of such instances in a month since January 2016, according to The Wall Street Journal.

Upcoming this week:

Friday: Jobs and unemployment, U.S. Bureau of Labor Statistics

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.