Trump Is Fed Up After Powell Speech

Trump Powell Speech.png
  • Policymakers Acknowledge Limits of Monetary Policy

  • Market Volatility Returns

  • Headlines Don’t Deter Consumers

  • Should You Freeze Your Credit?

  • Looking Ahead to Inflation, Consumer Confidence and More

China trade and the potential for tit-for-tat tariffs to become a full-scale trade war remain key worries on Wall Street, but Friday’s speech by Federal Reserve Chair Jay Powell had been a balm. Until President Trump tweeted out the straw that broke traders’ backs.

Powell had soothed investors with talk of potential stimulus should the U.S. economy falter. But the president’s bellicose tweet that U.S. companies should immediately look for “an alternative to China” and bring their businesses home to the U.S. along with further criticism of the Fed prompted an immediate sell-off. The Dow Jones Industrial Average dropped more than 400 points, or 1.6%, in mere minutes before falling further.

Stocks’ performance was a sharp change from the previous four days, when the Dow moved up 1.4% as strong retail sales data offset concerns over slumping manufacturing activity.

Amid the sturm-und-drang, markets remain firmly in positive territory for 2019. Through Thursday, the Dow Jones Industrial Average and broader S&P 500 index have returned 14.4% and 18.1%, respectively. The MSCI EAFE index, a measure of developed international stock markets, is up 8.8%. As of Thursday, the yield on the Bloomberg Barclays U.S. Aggregate Bond index has fallen to 2.24% from 3.28% at 2018’s end. On a total return basis, the U.S. bond market has gained 8.4% for the year.

Policymakers Acknowledge Limits of Monetary Policy

Chair Powell’s speech this morning acknowledged the limits of monetary policy in solving economic problems—particularly when it comes to disruptions in global trade.

His comments reiterated what we saw in the minutes released this week from the Fed’s July confab, which revealed an evolving meeting-to-meeting mentality when it comes to deliberating more interest-rate cuts and/or stimulus actions.

We’ve noted this shift from reactive to proactive is likely to have consequences both intended and not—the first effect being that policymakers seem more prone to event-driven decision-making than they have been in decades.

Powell and others echoing him continue to refer to the July interest-rate cut as a “mid-cycle adjustment”—the more the phrase is repeated, the more ordinary it appears and normative it becomes. To us, it reads as a clever turn of phrase that masks underlying qualms more than it accurately portrays a benign “adjustment.” 

Market Volatility Returns

You may be feeling a bit of whiplash this month—both from the headlines and the daily swings in the market. And this morning’s big moves are further evidence that volatility has returned. Since the S&P 500 index hit its most recent record high on July 26, the index has risen or fallen by 1.1% on average each day. Before that, the average daily move this year was just 0.6%.

We believe it’s important to keep daily volatility in perspective. The underlying value of companies traded on major stock exchanges does not change as quickly as their share prices might suggest. Sentiment moves stocks on a day-to-day basis, with a little bit of qualitative data adding to the mix.

We aren’t dismissive of market volatility, which can be unnerving. Nervousness, though, is not an investment discipline or plan. Instead, it is a heightened state of awareness that things could go wrong—that awareness is ever-present in our analysis and assessment of what we know (versus what others fear and claim to know), of the markets and of your portfolios. Our tactical and fundamental investment strategies are built to react to data, not emotions. We’ll be ready to act when the market tells us to—but neither we nor our models jump at every tweet.

Betting against the U.S. consumer—and, by extension, the U.S. economy—doesn’t make sense. Not yet.

Headlines Don’t Deter Consumers

Betting against the U.S. consumer—and, by extension, the U.S. economy—doesn’t make sense. Not yet.

Second-quarter earnings reports from some the country’s leading retailers demonstrated the deep pockets of the nation’s fully employed and confident consumers—provided the company has been willing to adapt to consumer preferences.

Home improvement giants Home Depot and Lowe’s posted better-than-expected profits. Shares of retail giant Target surged to a record as increased digital purchases and strong demand pushed sales and profits higher. Dick’s Sporting Goods tallied its best sales quarter in three years.  

Taken alongside the 2.5% rise in existing-home sales in July, it seems clear that, thus far, if the American consumer is feeling any apprehension about trade wars, tariffs or the potential for a recession, they’re not showing it at checkout aisles in-store or online.

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Should You Freeze Your Credit?

Credit card fraud is the most common type of identity theft. And while a credit freeze is one preventative measure you can take, it may not always be necessary. What is a credit freeze and what does it do? Read on.

A credit freeze simply restricts access to your credit report. Since anyone giving you a loan (either via a new credit card or a mortgage) will want to check your credit history and score, this effectively blocks someone from opening new lines of credit under your name.

To freeze your credit, send separate requests to each of the three major U.S. credit bureaus—Experian, Equifax and Transunion—online or by mail or phone. They will then freeze your credit reports and give you a personal identification number (PIN). Existing creditors will still have access to your credit reports, but new creditors cannot view them unless you contact the credit bureau and use the PIN to either permanently or temporarily unfreeze them.

Freezing your credit does not lower your credit score, but it does make applying for a new loan or credit line more challenging, so here are few things to in mind:

A Freeze Isn’t Complete Protection. It may not stop identity thieves—yes, it will prevent a thief from opening new accounts under your name, but it won’t prevent fraud on current accounts. If your existing credit card information gets stolen, the thief can still run up a bunch of charges. A credit freeze is not a substitute for regularly monitoring your credit card activity.

Act Fast. If you suspect you’ve been a victim of a widespread data breach or if you notice fraudulent or suspicious activity on your account, consider freezing your credit before the problem snowballs.

Protect That PIN. If you do freeze your credit, hang on to your PIN! A lost PIN increases the hassle factor significantly if you need to thaw your credit for a new loan.

Alternatives to a Freeze. Many incidences of theft are minor and can be handled without freezing your credit—a credit lock or a fraud alert are other less-involved solutions.

A credit lock still prevents creditors from gaining access to your credit report, but it is less onerous to unlock your credit than it is to unfreeze it. But locking your credit is not necessarily free and it is not government-regulated.

Putting a fraud alert on your credit report will alert creditors to take additional steps to verify your identity before approving anything. Among its benefits, a fraud alert doesn’t require you to remember a PIN or take additional steps to lift it—they expire after 90 days and can be renewed.

Preventative Measures. Monitor your credit card activity and stay wary of suspicious phishing emails that ask for key pieces of information regarding your card information. We also recommend requesting your free credit report once a year from each of the three major credit bureaus so that you are aware of any irregular activity.

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Looking Ahead to Inflation, Consumer Confidence and More

Next week, we’ll get reads on manufacturing activity, durable goods orders, inflation and consumer confidence, sentiment, spending, savings and income. Plus, we’ll see the first revision to second-quarter economic growth (GDP).

If you’d like to learn more about our tactical or fundamental investment strategies, please contact Steve Johnson at 844-587-7393 or info@bravercapital.com.

Please note: This update was prepared on Friday, August 23, 2019, prior to the market’s close.

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