Another Interest Rate Drop and Progress in U.S.-China Trade (for Now)

Learn more about what happened in the market in September 2019
Many investors recouped losses from August thanks to perceived progress in the U.S.-China trade saga and the Federal Reserve dropping their short-term interest rate another 0.25% to 2.00%. While investor sentiment waxed and waned, the market largely shrugged off such notable events as an attack on Saudi oil fields, continued Brexit drama, and threats of impeachment. Despite these potential negative influences, many indicators point to a solid economy: unemployment is low, housing remains strong, and inflation is in check.

S&P 500 Composite (Large Cap)1.87%20.55%
Russell 2000 (Small Cap)2.08%14.18%
MSCI World Ex-US2.81%13.57%
Barclays US Aggregate Bond-0.53%8.52%

The Compulsory Update on China

Early in September, markets cheered as the U.S. and China announced plans to hold high-level trade talks in Washington in October. Is this a promising sign of development in the trade war? We wish we could say yes, but it’s not that simple. So far, the U.S. and China have held 14 of these talks. Some have been constructive but after others, both countries announced tariffs on almost all of their respective imports. Bottom line: don’t hold your breath.

Another Drop in Interest Rates
Attention was focused on the Fed again last month. As usual, there was rampant speculation and wide-ranging expectations of what they would do. Would they cut interest rates, how much they would cut, and what would be their plan for the future easing of the U.S. financial system? The Fed delivered what the market saw as appropriate easing: they dropped interest rates 0.25% and left future plans very open. There could be another cut, but they didn’t guarantee it would happen.

All Eyes on Earnings
As we prepare for another earnings season, we will be watching out for companies that may be affected by the extended trade war with China. FedEx (FDX) stock tumbled 13% earlier in September due to disappointing earnings. They cited competition from Amazon but also referenced slowing economic growth. Will other companies start to feel the same pain? Economic data remains good, but if trade uncertainty starts impacting profits, that may trickle down to the consumer and increase the chances of a recession.

There are worries about potential slowing growth, but at the same time, we see many signs of a solid economy. Jobless claims and unemployment both remain very low, and building permits are increasing. It’s important stay balanced and focus on the facts (more than your feelings) when it comes to investing. We’ll continue to keep you updated on market events and help you follow your plan. If there’s anything you’d like to talk about in more detail please let us know. We’re here to serve.

We hope you enjoy a great start to Fall and football season!

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