Adding to the Madness

The last cut is the deepest 

As expected, the Fed cut its benchmark interest rate by another 0.25% during its meeting this week. Contrary to expectations, however, Fed Chair Jerome Powell pointed to the strength of the economy and suggested expanding its balance sheet (they had been doing the opposite). This decision wasn’t unanimous as two board members wanted to keep rates unchanged while another board member, who believes manufacturing to be in recession already, wanted to cut rates more aggressively by 0.50%. 

Moral of the story: The biggest question for the market heading into this decision was the Fed’s willingness on further economic stimulus in the form of rate cuts during the remainder of this year. Based on Powell’s commentary, additional rate cuts seem to be unlikely this year. Trump’s disappointment with this was apparent on Twitter within minutes of the Fed’s statement being released. The President’s unrelenting pressure on the Fed is frankly ridiculous given we’re largely in this economy of uncertainty because of his tactics with global economic partners. 

Producing not much 

Industrial production increased 0.6% in August, which is the largest increase we’ve seen in a year. The increase was driven by mining (includes oil and gas) production, which increased by 1.4% in August after declining by 1.5% in July. Obviously, these numbers fluctuate bigly each month, so this yuge production gain is probably temporary. 

Moral of the story: The general downward trend in manufacturing will likely persist through the end of the year at this point given the continued global uncertainty and China trade war. Currently, there’s also a strike against General Motors that could further hurt this sector in the upcoming months. Weakness in manufacturing is a big reason for the Fed’s rate cut this week.  

Iran, now you better run 

Attacks on Saudi Arabia’s oil facilities last weekend shut down half the kingdom’s oil production. Saudi Arabia concluded this week that Iran (or one of its friends) orchestrated the drone and missile attack. Trump had already threatened to bring “fire and fury” against adversaries and the Pentagon announced on Friday evening that it would deploy US forces to the Middle East to “protect our citizens and our interests in the region.” 

Moral of the story: This adds yet another level of uncertainty in the global markets. ICYMI, the list already included Brexit, a weakening Eurozone, trade war with China, and the upcoming US Presidential election, just to name a few. I honestly can’t remember the last time there were so many known unknowns in the market, and it’s getting to be insanely difficult to make investment decisions in such an environment. SOS.