More Market Milestones and Fed Do-Overs

Dow 27K! S&P 500 3K! NASDAQ 8200! Just months after the bull market in stocks and the current expansion each became the longest on record, U.S. equity indexes reached more milestones last week. Sure, the economy is expanding, but you can thank one person for the recent leg up in the bull market rally: Fed Chairman Jerome Powell.

After last month’s Fed policy meeting, when Powell & Co signaled that they were leaning towards lowering interest rates, the Fed chair appeared to seal the deal during his semi-annual testimony to Congress that all systems are a go for a July cut. His rationale is that while growth is “solid,” the labor market has bounced back and trade tensions have downshifted to a simmer from a boil, the economy needs help. Huh?

What REALLY seems to have occurred is that officials want a do-over on their September and December 2018 quarter-point interest rate hikes. Maybe they were a little aggressive on those actions and that’s why “economic momentum appears to have slowed.” Economist Joel Naroff believes that the Fed’s “logic is flawed and that under normal circumstances, lower interest rates might be expected to increase growth, but that doesn’t seem likely right now.” The reason, according to Naroff is that a reduction in interest rates would not eradicate the trade war, so “why would businesses change their investment or expansion plans?  Got me.”

What is abundantly clear is that the potential for a rate reduction is helping the stock market. As a result, now might be a very good time to rebalance your portfolio and replenish your emergency reserve fund, if you have not done so, especially as companies gear up for Q2 earnings season. According to Factset, the S&P 500 is expected to report a decline in earnings of 3 percent for the three-month period.