Painkillers Are Not Cures

Last week the Federal Reserve announced it would cut interest rates by 0.25%. This is major news because it signals the end of the “tightening” cycle and is the first rate cut since the Great Recession fallout. I wrote about the stock market’s action during rate cutting cycles a few weeks back here.

Here’s another great chart showing market performance during the last two rate cutting cycles.

Continue reading “Painkillers Are Not Cures”

Fed Rate Cuts and the Market’s Response. A Historical Perspective…

I was asked a great question by a client this morning. “With all this news of rate cuts from the Fed, how does this impact my portfolio?”

The market has broadly rallied on expectations that the Federal Reserve would begin lowering interest rates again…likely even at its next meeting (July 30-31). This is an action the Fed hasn’t taken since the Great Financial Crisis of 2007 – 2009.

But how has the market actually performed, historically, once the Fed has begun easing after a period of tightening? It’s not necessarily bullish at all: Continue reading “Fed Rate Cuts and the Market’s Response. A Historical Perspective…”

Auto Production Figures, Inventories and 0% Financing on New Trucks

Automobile production figures through Q1 were released this morning. I pay close attention to these numbers as contractions in automobile production has tended to lead recessions (see below).

Gray bars indicate recessions. Blue line is monthly production figures. Orange line is annual.

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Per CNBC: “Motor vehicles and parts production dropped 2.5 percent last month after increasing 2.3 percent in February. An inventory overhang in the automobile sector is weighing on production, contributing to factory employment declining in March for the first time since July 2017.” Continue reading “Auto Production Figures, Inventories and 0% Financing on New Trucks”

Updated: The Price You Pay Determines Your Return

When most people are sleeping, I’m either working out or researching. Today, how about I just share my weekend research with you?

“In the short-run, the market is a voting machine… but in the long-run, the market is a weighing machine.” – Warren Buffett paraphrasing his mentor Benjamin Graham

My interpretation of this brilliant, succinct statement of the types we’ve come to expect from Warren Buffett, is that in the short-term, markets trade based on investor emotions (or things like high-frequency trading), but, over the long-term, fundamentals ultimately determine price. In other words, over the long-term, price will accurately reflect the fundamental value of a company even if there is a bunch of noise in the interim. Continue reading “Updated: The Price You Pay Determines Your Return”

FedEx’s Warning, Slowing Growth and Valuations

Yesterday afternoon, FedEx reported disappointing global revenue and earnings. This is important because package delivery tends to be closely correlated with the strength (or weakness) of the economy.

But not only did they report weaker-than-expected results, FedEx also issued an overt warning about the global economy. Specifically, FedEx’s chief financial officer stated, Slowing international macroeconomic conditions and weaker global trade growth trends continue, as seen in the year-over-year decline in our FedEx Express international revenue.” [emphasis mine] Continue reading “FedEx’s Warning, Slowing Growth and Valuations”