Monday, 15 July 2019

S&P 500 at record high at risk of rate-cut disappointment

The S&P 500 closed at an all-time high of 3,013.75 on Friday.

Stocks were driven by expectations for an interest rate cut by the Federal Reserve at the end of this month after Fed Chairman Jerome Powell's congressional testimony last week.

In his testimony Powell said that the Fed is prepared to “act as appropriate to sustain the expansion”.

Indeed, some investors think a 50 basis-point cut is possible, with the Fed funds futures market placing a 23.5 percent chance of such a move as of Friday.

“Historically the Fed has wanted shock and awe when they ease,” said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management.

In contrast, some question the need for a rate cut at all.

“Unemployment is below the Fed’s maximum employment target, prices are as stable as they have ever been in the history of the country, and the yield on a 30-year Treasury yield is 50 basis points above its all-time low,” noted Michael O’Rourke, chief market strategist at JonesTrading.

“I’m having a hard time figuring out why they’re planning to cut,” said Mark Stoeckle, CEO and senior portfolio manager at Adams Funds.

Indeed, Michael Schumacher, global head of rate strategy and managing director at Wells Fargo Securities, suggested that the Fed is “going to disappoint the market” by not cutting as much as it already anticipates.

Anthony Grisanti, founder and president of GRZ Energy, said: “I don’t think he’s going to cut rates at the end of the month.”

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