OP-ED: Continuing To Climb A Wall Of Worry

Published October 11, 2019

William RutherfordLongtime readers of this column may recall that I often write that the market climbs a wall of worry. This year has been no exception.

In spite of raucous headlines and recurring bad news, the U.S. equity market has increased 18.2 percent this year through September. European and Asian markets (the MSCI EAFE index) are up 13 percent. The U.S. real GDP annualized growth rate is at 2 percent. Consumer confidence has remained strong. Inflation is subdued.

But U.S. economic production is slowing, as is capital spending and investment. Indeed, on the first day of the new quarter, the U.S. manufacturing survey (the ISM index) came in at the lowest level since June 2009; it was the second consecutive month of contraction. While business leaders and economists blame tariff wars, President Trump took Federal Reserve Chairman Jerome Powell to the whipping post, calling the Federal Reserve Board – his appointees – “pathetic.”

Consumer spending is about 70 percent of the U.S. economy, so when the consumer is happy, the economy is strong. The U.S. consumer is important to the world economy too. Right now the consumer confidence level is strong, although […]

By |October 14th, 2019|Categories: Daily Journal of Commerce|Comments Off on OP-ED: Continuing To Climb A Wall Of Worry

Trade Tensions Continue To Jolt Market; Expect No Respite

Published September 9, 2019

William RutherfordInvestors suffered in August from sharp moves in stock prices, as our nation’s trade dispute with China and an inverted yield curve took stocks on a wild ride.

The S&P posted 11 moves of more than 1 percent in only 22 trading sessions for August. The declines included three sessions of at least 2.6 percent as well as the worst day of the year on Aug. 5.

The CBOE Volatility Index, considered to be the best gauge of fear on Wall Street, traded as high as 24.81 in August, before pulling back to around 18.

The increasing volatility was largely due to U.S.- China trade relations and a recession signal being flashed by the bond market.

August began with President Trump tweeting that he would place an additional 10 percent tariff on $300 billion in Chinese imports starting Sept. 1. The announcement wiped out the gain of more than 1 percent on the day, and the S&P finished down 0.9 percent that day.

On Aug. 5, Trump accused China of currency manipulation, and the S&P dropped nearly 3 percent.

Trade tensions escalated when the Chinese announced new tariffs on $75 billion of U.S. products. Trump responded […]

By |September 9th, 2019|Categories: Daily Journal of Commerce|Comments Off on Trade Tensions Continue To Jolt Market; Expect No Respite

Federal Reserve Buys Insurance; Market Drops Anyway

Published August 9, 2019

William RutherfordWith the broad stock market up 17 percent year to date, the U.S. would seem to be on strong economic footing. Job growth is robust, profit growth is good enough, unemployment is low and consumer confidence is strong. So what is so wrong that the Federal Reserve was prompted to cut interest rates? Interest rate cuts are usually reserved for a weak economy.

There are numerous reasons. The president mounted a campaign to get the Fed to cut rates, which worked. The Fed was intimidated into cutting rates, because the financial markets came to expect a cut and actually demanded it. How can a market demand anything, let alone a rate cut? Well, when the financial markets bet that interest rates will go down and rate cut expectations go up, the Fed is in the crosshairs. The president’s demand clearly influenced the Fed.

Why did the president want a rate cut? The short answer is that it was good for his reelection prospects. The president has enjoyed the benefit of a strong economy, but with his favorability numbers still weak, he wanted some insurance.

Adding fuel to the fire, the president’s […]

By |August 12th, 2019|Categories: Daily Journal of Commerce|Comments Off on Federal Reserve Buys Insurance; Market Drops Anyway

Stocks Forge New Highs; Tariff Wars Cause Volatility

Published July 8, 2019 

William RutherfordU.S. equities markets streaked to new highs in the first half of 2019, in spite of a sharp downturn in May. The S&P index for the first half of the year jumped 18 percent. Before we become too smug, however, the Chinese Shanghai index and the Russian index were up over 20 percent; even emerging market Egypt, which I just visited, was up.

Best performing sectors in the U.S. were technology and consumer discretionary, with health care bringing up the rear. The prospects for the rest of the year are less sanguine.  The expansion is historically long, and the effects of the “tax cut” are wearing off.

Attention now shifts to Federal Reserve interest rate decisions. With Fed futures now forecasting a 100 percent chance of an interest rate cut, the only question appears to be whether it will be 25 basis points or 50 basis points. There is very little discussion, let alone support for no rate cut. The wisdom of a rate cut is questionable, given that the economy is very strong (though slowing). With 7 million jobs available and only 6 million people to fill them, it is difficult […]

By |July 8th, 2019|Categories: Daily Journal of Commerce|Comments Off on Stocks Forge New Highs; Tariff Wars Cause Volatility

Quo Vadis? Worries Mount As Stock Market Gyrates

Published May 13, 2019

William RutherfordThe market began the year with its best start since 1998. After the jarring fourth quarter of 2018, the broad market powered its way to all-time highs. By the end of April, the market had gained 25 percent from its 2018 Q4 bear market low and 545 percent from the March 2009 financial crisis lows.

Gross domestic product (GDP) growth is running at about 3 percent – a significant improvement from the 2 percent of just a year ago.

April saw 265,000 new jobs added; that is a very strong number. Unemployment reached lows not seen since December 1969. There are a record 7.5 million job openings in the U.S.

Inflation remains low, but so do wage gains. The Federal Reserve, under pressure from President Trump to cut interest rates, declined to do so; nevertheless, the market priced in one rate cut for the rest of the year anyway.

The outlook for interest rates remains somewhat cloudy because of White House pressure, but Federal Reserve Chairman Jerome Powell will likely keep to the Fed’s established course, at least until the end of the year. That is, of course, unless Powell is forced […]

By |May 15th, 2019|Categories: Daily Journal of Commerce|Comments Off on Quo Vadis? Worries Mount As Stock Market Gyrates

S&P 500 Off To Its Best Start Since 1998

Published April 8, 2019

William RutherfordThe last quarter of 2018 was a big disappointment to investors. Beginning in the autumn of the year, the market dropped 18.9%, reaching a bottom on Dec. 24. While not panicking, investors were certainly shaken.

The world economy, including the U.S., appeared to be slowing. To make matters worse, the Federal Reserve, sticking to its script, raised interest rates by a quarter point, extending worries about the economy. The market drop was sharp.

But, as often happens, the market surprises. The first quarter of 2019 was the best since 1998. The S&P index was up 13.1%, the Dow up 11.2% and the Nasdaq up 16.5%. Well, how do you explain such machinations?

In the fall of 2018 it became clear that the global economy was slowing. At the same time, the Federal Reserve believed it was time to raise interest rates. A bit of a back story: after a long time of historically low interest rates, some believed it was time to raise rates; the Fed subscribed to this idea. We have often written here of policy accidents. We have been worried about policy accidents. The Fed, looking at its tea […]

By |April 8th, 2019|Categories: Daily Journal of Commerce|Comments Off on S&P 500 Off To Its Best Start Since 1998