The Fed Cuts Rates… Again

Fed cuts rates a quarter point for the third time this year. Baseline economic outlook remains favorable and policy will remain appropriate… (Wow! Was that a surprise, I mean who would’ve thought?)

Blackrock’s Ricky Reider says that Powell is doing 100% the right thing.

And Patti Domm of CNBC says:

“Powell Aces Tricky FED Transition to Ending Interest Rate Cuts”

In the end, Jay Powell signaled a pause in any further rate cuts UNLESS the economic outlook changes materially. Well, is that really news? Isn’t that the point? Did we need him to tell us that they could change their minds? Of course they can, and if the economy heats up then he can raise rates as well. So it’s all good.

The FOMC (Federal Open Market Committee) did decide to alter their language in yesterday’s statement, dropping the pledge to “act as appropriate to sustain the expansion,” while adding a promise to monitor data as it “assesses the appropriate path of the target range for the federal funds rate.” It’s all semantics. None of it was really a surprise. Was it? The market expected a cut and they got it. The market expected them to go into a holding pattern and they got it, and the market expects them to act appropriately and they said they would. It’s all good.

Now look, the S&P traded below Tuesday’s close all morning and into the afternoon. Not sure what was really coming. Should we be disappointed with the news or should we embrace it? The jury was out. Then at 2 pm, the announcement came out and the first reaction was for the market to sell off a bit more, waffling around. Then, Jay took to the stage, appearing confident and at ease. He started to lay out the plans, saying things like:

“We believe monetary policy is in a good place, we see the current stance of policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook.”

And the algos and investors loved what they heard (rates to remain LOW for a very long time). Suddenly at 2:50 pm, we went from negative to positive and never looked back.

By the closing bell the Dow surged adding 115 points or 0.43%, the S&P made another NEW closing high adding 10 points or 0.33% closing at 3,046.77, the Nasdaq joined in by rallying 27 points or 0.33% and the Russell, in confused logic, backed off and gave up 4 points or 0.27%.

The Dow Transports, which had run up over 1000 points this month, moved into the negative column as traders that bought it up on the “rumor” sold it on the “news,” and put the money back in their wallets (or their margin accounts).

Next was Apple and Facebook, both (along with a host of others) reported after the bell. As you would expect, they both “blew the roof off the place!” Apple and FB both rose 4.5% in the afterhours session ending at $247.55 and $196.80 respectively. Apple posted results of $3.03/share vs. the expected $2.84/share and revenue of $64.04 billion vs. the expected $62.99 billion, and expects to “kill it” during the holiday season. FB posted earnings of $2.12/share vs. the expected $1.91/share on revenues of $17.65 billion vs. the expected $17.37 billion.

Then, Jack Dorsey of Twitter fame, announced that he was banning all political ads on Twitter, right as Marky Mark (Zuckerberg) was preparing to announce his earnings, hoping to steal some thunder. And he did, traders in Twitter did not like that announcement and sold the stock off 4% before it found some support (this morning it has regained those losses as the conversation continues). Traders in FB took that stock UP 4.5% after the news and earnings. So I guess Marky Mark got the last laugh… In any event, this argument over political ads is not over by any stretch. You can bet that Zuck is going to come under fire as the season kicks into high gear next year. Calls by the Democrats to break up FB will be all the rage. I mean Lizzy and Bernie are already screaming about it. While the ads themselves won’t price stocks, we can be sure it’s going to be entertaining to watch.

This morning the tape is ablaze. Futures which had been up suddenly turned lower. Why? China headlines. Now let’s just lay this out and rewind two weeks…

Earnings expected to be weak — confound the street as more and more companies ‘beat the number’ and offer stronger forward guidance. And then…

Two weeks ago, China officials and US officials get long the market suggesting there is progress on trade. And then…  

We suddenly have a ‘trade agreement’ and the market SURGES. Donny and Xi Xi prepare to meet in Chile at the APAC conference to sign the deal… and the market surges again (are you following this?)

Then yesterday, Chile cancels the APEC Conference over unrest in their country. So Donny and Xi Xi prepare to meet in Macao. Earnings continue to beat and the FED joins the ECB (European Central Bank) and the BoJ (Bank of Japan) and cuts rates. The market surges again…

Yesterday as the market makes new highs, China officials and US officials sell their long positions (pocketing the profits) and go short. Hold on, here it comes…

And then this morning, we get hit with this headline from CNBC:

“US Futures turn Negative on Report that China has Doubts Over a Long-Term Trade Deal”

Bloomberg runs with this one:

“China Said to Doubt Long-Term Deal is Possible with Trump”

US Futures suddenly turn negative as the street tries to sift through these headlines. Who leaked this story? Is it true? While they might sign Phase One, any further hopes of a Phase Two or Three are now dashed. And you can just hear the cash register ring again.

“in private conversations with visitors to Beijing and other interlocutors in recent weeks, Chinese officials have warned that they won’t budge on the thorniest issues… They remain concerned about President Trump’s impulsive nature…”

Well, that about says it all… Are the Chinese just stringing this along, willing to wait it out until Nov. 3, 2020? I mean look, this war is already 22 months old and stock markets around the world are making new HIGHS. All when we were told that a trade war would devastate the global economy and by default send equity markets lower. How’s that working out? Apparently they must think that Lizzy, Bernie, Joey, Corey and Petey are less “impulsive.”

US futures are now negative. Dow futures down 84 points, S&Ps are off by 10 points, the Nasdaq is off 19 points and the Russell is down by 5 points. This latest headline will now dominate the discussion today as the algos try to figure out if: A. the headline is true, and B. If so, what’s next?

Economic data today includes Challenger Job Cuts, Personal Income – exp of 0.3%, Personal Spending – exp of 0.3%, Initial Jobless Claims of 215k and Cont Claims of 1.679 million. But the big report will be tomorrow: the NFP (Non-Farm Payroll) report. The expectation is for 80k new jobs, but yesterday’s ADP employment report showed an upside surprise in new jobs, 125k vs. 110k. So will we see that tomorrow as well? Not sure, but right now, it’s all about the Wars, US/China trade and TWTR/FB political ads.

Look for the S&P to digest the move higher especially as the latest headline permeates the markets. A retest of 3000 would not be out of the question at all. Investors/traders and algos still need to consider the FED’s latest move as they tear apart his testimony word by word, get hit with more US macro data and more earnings. News that the trade deal may be in trouble will not help the tone…

European stocks are lower as investors there consider the implications of NO DEAL between the US & China. Next up, the British election machine heats up. PM BoJo and opposition leader Jeremy Corbyn hit the road as they prepare for the December election. France is joining forces with the “Italian Americans.” FCA (Fiat Chrysler) announced a merger with Peugeot Citroen, creating the world’s fourth largest auto manufacturer.

FTSE -0.86%, CAC 40 -0.47%, DAX -0.30%, EUROSTOXX -0.29%, SPAIN -0.33%, and ITALY -0.30%

Take good care.

Kp


brown betty

Apple Brown Betty – (Celebrating Apples!)

Now while I like to cook by feel, you can’t really bake by feel.  Baking requires more exact measurements so for this I give you the following.

5 large golden delicious apples, peeled and thinly sliced.  1 c of apple cider, 4 tbls of brown sugar, 1 tsp of vanilla, 1 tsp of cinnamon, 4 tblsp of butter, 3 slices of whole wheat bread – enough to make about 2 cups of crumbs, and chopped walnuts.

Preheat oven to 350 degrees.

Combine the apples, the cider, 2 tbls of brown sugar, the vanilla and ½ tsp of the cinnamon in a large saucepan over med heat.  Cook, be sure to stand there and stir – you want the apples to be tender – not like mush.  Should be no more than 10 mins… At this point stir in 2 tbls of butter — remove from the heat and put in a buttered 9 in pyrex pie plate.

Now in a food processor – add the bread and process it until it turns to crumbs….do not blend it so it becomes so fine…only about 10 seconds max… Now melt the remaining butter in the micro and toss the breadcrumbs in the butter – add the walnuts, 2 tblsp of brown sugar and the balance of the cinnamon.  Spread this mixture on top of the apples and bake for 30 mins – making sure that the topping is crisp.

Serve it hot with a 2 scoops of French vanilla ice cream. So good.

Buon Appetito.

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Stocks ripped higher in what may prove to be nothing more than a ‘dead cat bounce’… completely forgetting why they ripped lower for the past week – giving up more than 10% in the Nasdaq and 4% and 7% for the Dow and S&P, respectively. The mood was buoyant in the pre-mkt trading… you could feel the excitement as investors/traders and algos all got ready to go on a shopping spree – apparently overnight – the computers realized that the ‘sale’ going on on Wall St – may be just a bit overdone…

Kenny Polcari

Kenny is the editor of Morning Thoughts and has been with Seven Figure Publishing since 2019.

Kenny is a CNBC exclusive contributor appearing on shows like The Halftime Report, Power Lunch, and Closing Bell. His market commentary has reached audiences across the nation on media outlets such as Bloomberg, Fox, ABC, and more.

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