 The Market Sum | Insight after the bell
By Caleb Silver, Editor in Chief Tuesday's Headlines 1. Markets Tread Water Ahead of Fed Decision 2. Oil Prices Retreat as Saudi Production to Resume 3. Recession Expectations Rise for Fund Managers 4. WeWork Calls a Time Out Markets Closed
 Markets Today
U.S. markets traded in a narrow range Tuesday as the Federal Open Market Committee of the Federal Reserve begins its two day meeting on interest rates. All major indexes closed in positive territory, but not by much. Expectations are high for Fed Chair Jerome Powell to announce an interest rate cut of 0.25% tomorrow, but what the Fed says about future cuts in 2019 and the overall health of the economy is more important to investors.
The 0.25% rate cut is "baked in," as they say on Wall Street, and its one of the reasons stocks are back within 2% of all-time highs. When the Fed cut rates by 0.25% in July, Powell referred to it as a "mid-cycle adjustment." Apart from that sounding like something you do in a spin class, it sent the stock market into a four-day tailspin.
John Lynch, LPL's chief investment strategist, says to keep an eye on the Fed's economic growth forecast for 2020. In June, the Fed forecast 2% growth. If the Fed sees movement from the 2% forecast for gross domestic product (GDP) growth in June would signal continued confidence. The policy rate outlook will be lowered, since the median forecast in June was for no cuts in 2019. Markets will be looking for three cuts in 2019 and will be disappointed by two. Also watch for any reduction in the long-term GDP rate.
(chart courtesy tradingeconomics.com)  Oil Prices Drop on Saudi Recovery
Crude oil futures fell 5% today, after yesterday's historic spike in oil prices following Saturday's drone attacks on Saudi Arabia's oil supply. Saudi's Energy Minister Prince Abdulaziz bin Salman said that 50% of production has already been restored, and the Kingdom expects to be at full capacity by the end of September.
A day removed from yesterday's historic price spike has allowed for some analysis on the real impact of higher oil prices on the U.S. economy in 2019.
The importance of oil supply shocks has diminished over time. According to The Federal Highway Administration, the U.S. consumer spends much less on energy goods than in the past. Consumption of gasoline, fuel oil, and other energy goods as a share of total consumption (measured as Personal Consumption Expenditures PCE) has fallen from around 8% before the 1970s to around 2.3% today.  That, and the fact that today's vehicles consume a lot less gasoline than they did 30–40 years ago, means that oil price shocks are less shocking than they used to be—at least in the U.S., which is also producing a lot of its own oil today.  Fund Managers Brace for the Worst
Global fund managers are feeling the fear of a recession in ways they haven't felt since 2009. That's the result of a recent survey by Bank of America, which polled 235 fund managers who oversee nearly $700 billion in assets.
According to the survey, 38% expect a recession within the next year. Only 21% expect a rise in short-term interest rates within the same time frame. Put another way, nearly 80% of those surveyed don't feel like the lowering of interest rates by the Fed will actually translate into boosting the economy, thereby lifting short-term interest rates. As you know, short-term rates are extremely low now, which has led to several yield curve inversions already this year.
Finally, more than a third of those surveyed said that the U.S.-China trade war is the "new normal," and that it is the number one factor that will lead the U.S. into a recession. The majority of them (70%) felt there would be no resolution between China and the U.S. before the next presidential election in November of 2020.
Editor's note... We want our fund managers to be a little paranoid and pessimistic since they are the custodians of our money, so I'm taking this as good news.  WeWork Calls Time Out
The We Company's great expectations for becoming a public company are on hold until next month, or potentially next year. The company has shelved its plans to go public as it regroups after receiving lackluster support on its IPO road show. The road show is an opportunity for a pre-IPO company to present its case to institutional investors and wealthy individuals to invest in the company as it goes public.
WeWork made some significant changes last week to the voting powers held by CEO Adam Neumann, reducing his control over the company, once public. That wasn't enough to appease investors to want to participate in the company's public offering, according to reports.
But WeWork has another problem. Earlier this year it signed up for a $6 billion credit facility. As part of the deal, We agreed to make the facility contingent on it raising $3 billion of equity in a public offering. Given the lack of investor enthusiasm, if WeWork were to go public at a $15 billion valuation, it might have only raised $2 billion through its IPO, thereby eliminating its access to the $6 billion credit facility. Its main backer, SoftBank, may have been planning on that $6 billion credit facility to take some of its own money off the table. That will have to wait, apparently.
chart courtesy www.koyfin.com  Shares of Sealed Air rose by just over 4% after its $510 million acquisition of Automated Packaging Systems, which will grow and compliment several of the new parent company's initiatives and divisions. Ball Corp's stock price increased by nearly 4% today, following a report stating that the company has risen almost 61% YTD, due in part to a high demand for aluminum packaging.  Shares of Nordstrom fell by nearly 10% today, due to concerns that the retailer's brick-and-mortar stores will see less traffic as higher gas prices—a result of the attack on Saudi Arabia's oil processing facility—cause shoppers to neglect more fuel-heavy tasks like offline shopping. Several oil companies, including Apache (9%), Marathon Oil (8%), and Helmerich & Payne (7%), suffered a reversal of yesterday's sudden spikes as their stock prices decreased in response to Saudi Arabia's announcement that oil production capabilities had been restored and would return to normal levels by September's end.  Word of the Day: Given the news that FedEx missed analysts expectations when it reported its fiscal first quarter results this afternoon, we thought this would be appropriate. Shares of FedEx are down 9% in after-hours as the company missed analysts' earnings estimates and lowered its forecast for the rest of the year.
An analyst expectation is a report issued by an individual analyst, investment bank or financial services company indicating how a particular company's stock will perform in the coming quarter. Analysts provide guidance as to how they expect a company to perform. This is typically a range of values that a particular variable is expected to fall between. If a stock performs better than what analysts expected, it is considered to have beaten expectations or delivered stronger-than-expected results; the stock may also have been said to have beat the street. However, if a stock doesn't perform as well as analysts expected, it is said to have missed estimates. If the stock's performance varies significantly from most analysts' expectations, it can be called an earnings surprise, regardless of whether the stock beat or missed estimates.  (image courtesy abcnews.com)
Today in Markets History Sept. 17, 2001: The New York Stock Exchange reopens for the first time since the September 11 terrorist attacks on the Twin Towers; longest period of closure since the Great Depression of the 1930s. U.S. stocks plunged to their lowest levels in nearly three years, and the Dow Jones Industrial Average suffered its worst point-loss in history (at the time) as trading resumed for the first time following the 9/11 terrorist attacks.
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Tuesday, September 17, 2019
Expectations
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