CAMS Weekly View from the Corner – Week ending 8/2/2019
August 5, 2019
The key question is will the FED offer more rate cuts are to be expected or will they walk away from that type of message in light of the on-going growth displayed? Market participants will be weighing this answer into their forward pricing of markets so the result will be important.
We begin today’s edition exactly where we left off last week with today’s header quote. The above is an excerpt from last week’s Weekly View.
The central overview (both economically and on through markets) of this summer season has been the build-up of an expected Federal Reserve Interest Rate cut while witnessing an on-going healthy economy. While economic strength has diminished it certainly has remained solidly constructive.
Federal Reserve Chairman Powell delivered the expected ¼% interest rate reduction last Wednesday. Comments after said cut offered the FED’s view that we should reduce expectations of this being the beginning of an on-going interest rate cutting cycle.
Taking this to our header excerpt the key question outlined has been answered for now and market participants responded with downside pricing action of markets.
Now the central question is will this become the onset of a downtrend in markets or was this only a knee-jerk reaction?
Importantly, from the beginning of June through last Wednesday the market had put in a tremendous upside trend built upon ever higher expectations of not only a FED rate cut but a series of cuts. Per Chairman Powell’s comments these expectations are now being adjusted.
On-going Economic Strength
Adding to the healthy economic backdrop (which further reduces odds of more FED rate cuts) this past Friday the monthly employment report from the Bureau of Labor Statistics informed us of another healthy monthly employment report.
The Employment Report consists of two different surveys with one being the Establishment Survey while the other is known as the Household Survey.
Via the Household Survey we see the Labor Force actually grew by 370,000 people to an all time record high. For clarity, the increase in Labor Force is comprised of people who found employment as well as people who have chose to begin looking for employment but have not yet found a job. The Employed figure, within said Survey, also grew notably and increased by 283,000 people.
What the Household Survey is telling us, via the interaction of the Labor Force and the Employed categories is we seen a tremendous amount of new people that chose to begin looking for employment and hence officially entered the Labor Force and nearly 80% of those people became gainfully employed. This speaks to the underlying strength of the employment market and the economy at large.
If we continue to post solid economic measures we have to believe the FED will hold off on further rate cuts as they have offered. With this, will the growth be strong enough to satisfy market participants in light of interest rate cut expectations being notably reduced?
This is now our central observation point and will be answered by the most important opinion of all which is the market itself. We will share some market messages as they unfold in coming weeks.
I wish you well…
Ken Reinhart
Director, Market Research & Portfolio Analysis
Portfolio Manager, CAMS Spectrum Portfolio
Footnote:
H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP). This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”. A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.
This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.
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