foxex: No Satisfaction

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Wednesday's Headlines

1. Markets See-Saw on Fed Interest Rate Cut

2. Fed Doesn't Tip its Hand to Future Moves

3. CFO Confidence Shaken

4. FedEx is Sending a Warning to Global Markets

Markets Closed

Dow
27,147.08 +0.13%

S&P
3,006.73 +0.03%

Nasdaq
8,177.39 -0.11%

VIX
13.95 -3.39%

Bitcoin
$10,225.78 -0.42%

US 10-Yr Yield
1.786 -1.4349%

"I can't get no satisfaction, I can't get no satisfaction
'Cause I try and I try and I try and I try
I can't get no, I can't get no
When I'm drivin' in my car, and the man come on the radio
He's tellin' me more and more about some useless information
Supposed to fire my imagination"

("Satisfaction," 1965. Mick Jagger and Keith Richards)

Markets Today

Markets slide, then recover on Fed rate cut
Investors were looking for a clearer forecast
Trump blasts Powell... again

For some reason, I couldn't get Mick Jagger's voice out of my head while watching the press conference with Fed Chair Jay Powell this afternoon. The Fed had just announced a 0.25% cut to the overnight lending rate as expected, and U.S. markets were spiraling deeper into the red as he addressed reporters.

Powell said all the same things he has been saying for the past several months:

"The Fed will act appropriately to sustain the economic expansion..."

"The Fed will continue to be data dependent..."

"Global growth continues to weaken..."

"Trade developments have been volatile..."

But clearly, many investors were not satisfied. They were either looking for a deeper cut, or signs that more cuts were on the horizon for 2019. They got neither.

Instead, they got the Fed doing what the Fed is supposed to do... adjust monetary policy to keep unemployment low and inflation tame. It's doing both, but it's clearly not enough for many of its critics, especially one, in particular.

No surprise there.

The Fed is simply reacting to the data that it sees, and adjusting interest rates accordingly. The Fed sees the U.S. economy growing, albeit slowly, at a 2.2% GDP rate. It also sees a slowdown in manufacturing and business spending. The 0.25% rate cut, the second one this year, was done to induce borrowing by businesses and lower interest rates for consumers to keep spending to prop up the economy. That's been working, but the questions is, "How long can it last?"

The DJIA and the S&P 500 both turned positive by the end of the day, barely. Maybe investors also realized that the U.S. economy is in okay shape, and that deeper cuts might've sent off some serious alarm bells. But investor dissatisfaction with this Federal Reserve's announcements on interest rate decisions has always been palpable. Sentiment turned this afternoon, but not by much.

Here's what usually happens before and after Powell's press conferences, courtesy of BeSpoke Investments.

And here's what happened this afternoon, courtesy of Trading View.

What's Next?

The Fed didn't tip its hand to future moves, and Powell kept repeating that its decision will be data dependent. We do know that at least three of the ten members of the FOMC dissented from today's decision. At least one member of the FOMC wanted a 0.50% rate cut, while two members wanted no cut at all.

In terms of the direction of interest rates going forward, we need to look at the Fed's Dot Plot, to see where members of the FOMC think rates ought to be.

I know it's hard to see. The Fed doesn't have expertise in graphics, but if you look closely, you will notice that most members of the FOMC think the federal funds rate should be right where it is for the rest of 2019 and into 2020—somewhere between 1.75%–2.0%. They go up from there.

CFOs are Losing Confidence

We don't pay too much attention to surveys of executives, but this one got our attention.

U.S. business optimism dropped this quarter to its lowest level in three years, according to third-quarter results from the Duke University/CFO Global Business Outlook. A majority of CFOs expect a recession to start before the presidential election.

Here are some of the survey highlights, and lowlights:

Economic uncertainty is a top CFO concern.
CFOs in many industries list shortages in engineering, information technology, software programming, and sales. Medical technicians are also in short supply.
More than half (53%) of U.S. CFOs believe that the U.S. will be in recession by the third-quarter of 2020 and 67% believe that a recession will have begun by the end of 2020.
81% of African CFOs believe that a recession will have begun in their countries no later than Q3 of 2020, as do the majority in Canadian (68%), European (69%), Asian (72%), and Latin American (65%) CFOs.
36% of U.S. CFOs indicate that there are negative effects of continued low interest rates.

CEO's are optimistic, by nature. They are the faces of their companies and always try to put the best foot forward, no matter how bad things get.

CFO's, on the other hand, are realists and pessimists. They are responsible for the income and the expenses, and as Jay-Z likes to say, "Men lie, women lie, numbers don't." That's why we pay attention to CFO surveys.

FedEx is Falling

Regular readers know I am a little obsessed with cargo companies. In the world of global trade and commerce, they are the ultimate barometers of economic health.

FedEx, one of the world's biggest, is flashing a big warning sign.

As we wrote yesterday, FedEx missed earnings estimates leading to a sharp sell-off in the stock after hours. That sell-off bled into today, as shares fell another 13%. The company blamed slowing global growth and the U.S.-China trade war for part of its weakness. FedEx also lost Amazon, one of its biggest customers, earlier this year. That will put a dent in your growth.

But Fred Smith, FedEx's longtime CEO, sounded even bigger alarms when speaking to analysts about the companies results and forecasts for the rest of the year.

Here are a few quotes from Smith on the global economy:

"I think there is a lot of whistling past the graveyard about the U.S. consumer and the United States economy versus what's going on globally."

"Most people don't think about the fact that when China slows down because of U.S. tariffs or uncertainty or for whatever reason, as big a victim, if you want to call it that, of the China slowdown is Europe because Germany's contraction is because they're not selling as much to China, which is a huge customer of Europe."

So, the CEO of one of the world's largest shipping companies says the U.S. is ignoring a global slowdown, and the slowdown in China, which is being amplified by the trade war, is bringing Germany, and therefore Europe, to its knees.

We should pay attention.

More News:

Homebuilding Stocks Crushing S&P 500 on Rate Cuts Amid Warnings

Roku Breaks Down After Comcast Unveils Free Streaming Player

Why CFOs Expect a Recession In 12 Months

chart courtesy www.koyfin.com

Shares of Comerica rose by more than 2% following the company being recognized as one of the Top 50 Best Companies for Latinas to Work for in the U.S. by Latina Style. Capri Holdings' stock price rose nearly 2% today, continuing its recovery since declining 56% overall this year.

Shares of Fedex fell by nearly 13% after the company was forced to cut its earning guidance for the fiscal year. Alexion Pharmaceutical's stock price decreased by almost 5% today, following the sudden announcement that its current CFO is leaving the company.

Word of the Day

Interbank Rate

The interbank rate is the rate of interest charged on short-term loans made between U.S. banks. Banks may borrow money from other banks to ensure that they have enough liquidity for their immediate needs, or lend money when they have excess cash on hand. The interbank lending system is short-term, typically overnight and rarely more than a week.

The term interbank rate also refers to the interest rate charged when banks conduct wholesale transactions in foreign currencies with banks in other nations.