Market Conditions Are Ripe for More New Highs
The Federal Reserve continues to support borrowers and wage its war on savers…
Wednesday’s rate cut announcement was no surprise to most market watchers. As expected, the Federal Open Market Committee (FOMC) lowered the fed funds rate by 25 basis points to a range of 1.5–1.75%.
Notably, the vote was not unanimous. There were two dissenting votes — Esther George, president of the Federal Reserve of Kansas City, and Eric Rosengren, president of the Boston Federal Reserve.
I can’t say I disagree with the dissenters, either. Unemployment is historically low at 3.7% and the S&P 500 just hit a new all-time high.
I find it hard to justify this cut.
Thankfully, Jerome Powell and company indicated that the Fed would pause on future cuts, at least for now.
The Wall Street crowd appears to be in agreement. My colleague and market expert Kenny Polcari noted in his Morning Thoughts notes:
Understand this — the CME’s FedWatch analyzer now suggests that a December rate cut stands at 23% versus the 70% it was at earlier this month, so maybe the reaction to a “hold” will not be violent.
In short, the people controlling the monetary printing presses are as accommodative and as stimulative as they can be, and that’s an environment for higher stock prices.
Plus, Corporate America is still buying back shares like crazy…
According to Goldman Sachs, share buybacks will hit $1 trillion this year, a 13% year-over-year increase, and will break last year’s record.
“Although we expect growth in capex, R&D and cash M&A, we expect companies will continue to increase cash return to shareholders as they have in recent years,” said David Kostin of Goldman Sachs.
The combination of friendly central bankers and the buyback euphoria is going to keep the market charging higher for a lot longer than most investors think.
Don’t let the other negative headlines such as China’s pushback on “Phase 1” of the trade deal or semisoft economic data spook you out of the market.
For now, stocks could be headed higher.
Here’s to growing your wealth,