Wonder what the Federal Reserve's 40-yard dash time is?
On Wednesday, the Fed juked like an NFL running back and left investors wondering whether they should buy or sell. Heather Long of The Washington Post reported the U.S. central bank:
- Lowered its 2019 estimate for U.S. economic growth to 2.1 percent
- Announced its intention not to raise rates in 2019
- Indicated it will stop shrinking its balance sheet in September
Fed Chair Jerome Powell explained, "My colleagues and I have one overarching goal: to sustain the economic expansion with a strong job market and stable prices for the benefit of the American people. The U.S. economy is in a good place and we will continue to use our monetary policy tools to keep it there...We continue to expect that the American economy will grow at solid pace in 2019, although slower than the very strong pace of 2018."
The Fed's decision to adopt a looser monetary policy was informed by a variety of factors, including slower economic growth in the United States, China, and Europe, as well as unresolved policy issues like Brexit and ongoing trade negotiations.
Investors weren't sure what to make of the Fed's moves. Initially, major U.S. stock indices trended higher as investors celebrated the benefits of accommodative monetary policy. By the end of the week, though, many investors had changed their minds and fled to 'safe haven' investments, pushing long-term Treasury rates lower. Alexandra Scaggs of Barron's reported:
"When short-term yields rise above long-term yields, it's known as an inverted yield curve, which is seen even by central bankers as a sign that an economic contraction could be on the way...Benchmark 10-year Treasuries rallied Friday morning, driving their yields below those of the three-month U.S. Treasury."
So, is recession imminent in the United States? It's possible but unlikely. According to a source cited by Barron's, the last six times the yield curve inverted for 10 days or longer, recession occurred within the next two years.
No matter how the economy and/or markets perform, it may not be a good idea to make sudden portfolio changes. If you're feeling uncertain, give us a call. We can discuss changes you may want to make to your portfolio.
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Data as of 3/22/19
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1-Week
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Y-T-D
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1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500 (Domestic Stocks)
|
-0.8%
|
11.7%
|
5.9%
|
11.0%
|
8.5%
|
13.0%
|
|
Dow Jones Global ex-U.S.
|
-0.2
|
9.7
|
-7.2
|
5.7
|
1.1
|
6.3
|
|
10-year Treasury Note (Yield Only)
|
2.5
|
NA
|
2.8
|
1.9
|
2.7
|
2.7
|
|
Gold (per ounce)
|
0.6
|
2.3
|
-1.3
|
1.5
|
0.0
|
3.3
|
|
Bloomberg Commodity Index
|
0.2
|
6.6
|
-6.1
|
0.2
|
-9.3
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-3.3
|
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DJ Equity All REIT Total Return Index
|
0.7
|
15.6
|
19.7
|
8.3
|
10.1
|
17.6
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S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
