Last week, after Federal Reserve Chairman Jay Powell announced to the globe the decision to cut interest rates for the first time in a decade (25 basis points or a quarter of one percent) to 2.25%, the equity market sold off hard. The day after, investors were reconsidering this reaction because under any circumstance, financial instruments not related to a floating interest rate (think variable rate loans or certificates of deposits) are going to more valuable. Stocks are worth more when interest rates go down, as are bonds. Ask the professors, ask the historians, ask the investment bankers, the hedge funds, the private equity guys. You will get the same answer. It is why the investors decided to start buying stocks on Thursday and the market was flying high, up about two hundred fifty points. Mid morning, about ten o clock Pacific Standard Time, the financial markets were faced with their version of someone who must be the center of attention, and you can guess who that might be. Yes, our headline craving leader, the Donald, was at it again, over trade, announcing a further 10% tariff on $300 billion of Chinese imported goods, starting September 1. Financial markets have generally been pleased with the regulatory policies of Mr. Trump, and he is well aware of what goes on in the financial markets. In fairness to the Donald, there is a legitimate issue regarding what China’s restrictions are on the import and treatment of U.S. products, which has long been the case. It will probably take a good while longer to see if some sort of agreement can be reached with China. Some believe he makes policy based on the stock market, and his ongoing criticisms of Federal Reserve Chairman support that theory. The double whammy of the Federal Reserve and the Donald took the starch out of the market to the tune of three percent for the week (depends on the specific index in terms of percentage losses). As there are some of us with plenty of memories and summer squalls for the market, let me offer a bit of perspective.
A few years ago, right at this time of the year, in August, there was volatility in the Chinese markets which spilled over to the United States. Our indexes fell about 10% in the short span of maybe two weeks or less. There have been other years where hot temperatures bring hot money, and equities swoon. August is a month where many people are on vacation, which includes the investment world. Volumes are low. Liquidity for falling individual securities can dry up. After a near twenty percent run up in 2019, it seems like the opportune time to take profits, especially when Donald is on the warpath about China and tariffs. My own thought also revolves on the kinds of equities you own. If your portfolio is full of well run, highly profitable, and growing businesses, Donald’s desire for attention and other investors fragile psychological state should not be a cause for concern. July’s job report came in pretty much as expected at 164 thousand jobs created, with the unemployment rate staying at 3.7% My advice is to keep your eyes focused on one or two company stocks which you have long desired, and if the price is falling and in area where you feel it is attractive, well, just keep your mind open about it.
On the earnings front, reports continue to roll in with heavyweights like General Electric (NYSE:GE), Qualcomm (NASDAQ:QCOM) and Met Life all reporting last week. Others of note telling their performance included Western Digital (NASDAQ:WDC), Altice USA Inc (NYSE:ATUS), Avalon Bay Communities, Scotts Miracle-Gro Company (NYSE:SMG), Churchill Downs Incorporated (NASDAQ:CHDN), and Coors (NYSE:TAP). In Las Vegas, the temperatures are scheduled to hit 113 today, and I am sure it is quite in other areas across the United States. As such, the blistering heat can affect people by rendering them hot and bothered, which is what many of us in middle age are trying to avoid. Let’s hope the weather will cool down during the rest of August and people will be inclined to make things easy for us.