WASHINGTON. After tepid-to-negative trading action that hit from Wednesday morning’s opening bell, stocks and widely followed market averages tried to get above the flatline for most of the morning and the early afternoon. Occasionally, they succeeded. For a minute or two. But then the 2 p.m. ET release of the most recent Fed minutes hit the tape.
Fed minutes kill tepid rally, send stocks back down into the red zone
As a result, for now at least, as of the 2:15 p.m. mark, it looks like those Fed minutes have put the kibosh on any thoughts of a follow-through to Tuesday’s heroic rally. The Wall Street Journal summarized Tuesday’s excitement with admirable brevity in its early morning editions.
“The Dow Jones Industrial Average rose 547.87 points Tuesday, or 2.2%, to 25798.42, posting its biggest one-day percentage gain since March. The S&P 500 added 59.13 points, or 2.1%, to 2809.92 and the Nasdaq Composite climbed 214.75 points, or 2.9%, to 7645.49, also notching its best session since the spring.”
However, the WSJ also noted that after interest rates had pulled back from Friday’s rocket ride to the stratosphere, they began to sneak back up again today.
“On Wednesday, the yield on the benchmark 10-year Treasury note edged up to 3.163% from 3.158%, according to Tradeweb. Bond yields rise as prices fall. The WSJ Dollar Index, which tracks the dollar against a basket of 16 other currencies, added 0.2%.”
The Journal opined further that
“Despite anxiety about tighter financial conditions, some analysts remain confident that another strong quarter of earnings will help the market stabilize moving forward.
“Bank stocks helped the market recover from most of its early declines Wednesday, with the S&P 500 financials sector surging 1.1% as earnings season for lenders continued.”
The rally was nice. While it lasted.
Well, so much for that earlier optimism, now that the Fed’s minutes are out there. They confirmed the bulls’ worst fear. Namely, that this Fed is going to continue hiking interest rates by tortuous quarter-point intervals as long as they please. The hell with the Trump administration’s robust attempts to make up for the 8 lost economic years of the Obama administration. The Deep State, apparently, is alive and well.
CNBC explains what’s at play here.
“Federal Reserve officials remain convinced that continuing to gradually increase interest rates is the best formula to preserve a steady economy, according to minutes released Wednesday of the central bank’s most recent policy meetings.
“That may not please President Donald Trump, who has been vocal in his criticism of the central bank’s actions.”
Let’s blame the negative news on the Trump tariffs
With its parent network, NBC, thoroughly in the tank for Democrats in the run up to Election 2018, CNBC’s online news and opinion report on the Fed minutes release slyly shift a chunk of the blame to nervousness over Trump’s current tariff regime:
“A summary of the Sept. 25-26 Federal Open Market Committee session reflected both confidence in the rate of growth and some hesitancy over the impact that tariffs might have on the future path….
“‘With regard to the outlook for monetary policy beyond this meeting, participants generally anticipated that further gradual increases in the target range for the federal funds rate would most likely be consistent with a sustained economic expansion, strong labor market conditions, and inflation near 2 percent over the medium term,’ the minutes read.”
Fed: Let’s keep hiking interest rates, just because
Even worse, the Fed minutes seem also to be telling us that they really don’t give a damn whether their interest rate hikes kill our currently healthy economy or not.
“Policymakers discussed what the future path would be, with members saying that there might be a period where the Fed even will need to go beyond normalization of rates and into a more restrictive stance. That would be to control inflation from overshooting the Fed’s target and to address ‘the risk posed by significant financial imbalances.’”
In other words, the current Fed will be happy to overshoot any reasonable interest rate targets “beyond normalization of rates and into a more restrictive stance.” Which means, they don’t want any of us to even think about any “significant financial imbalances” that may occur on the upside.
Egghead 2018 Fed forgets the lesson of 1937
In word and deed, this Fed seems to be adopting the playbook of the boneheaded 1930s edition of the Fed. In 1937 – after Franklin Roosevelt had been re-elected – the U.S. remained mired in the Great Depression. But for some reason, that era’s Fed decided to kill off even the hint of a recovery. Too “inflationary” was the likely excuse. How to do it? By jacking up interest rates too high and very prematurely. Most Americans were still crushed. So what the hell was the point? “Prudence,” we’d suppose. Theory vs. Reality.
The U.S. economy promptly slid back into the Great Depression before it fully recovered.
Subsequently, German and Japanese aggression and territorial ambitions launched World War II. That conflict finally ended the Great Depression. But what a shame that it took millions of lives to get the U.S. and the world economy out of the economic rut the Fed itself had re-imposed.
On the other hand, this is still the Deep State Washington bureaucracy that got its start back during the New Deal. So what else could we expect from people who cannot learn?
Post Fed minutes gloom lingers in late Wednesday trading action
As we wrap this column up, approaching 2:45 p.m. ET, we find all three major averages off fractionally. The Dow doing the worst at the moment, off 0.50 percent. Apple (trading symbol: AAPL), Caterpillar (CAT) and several other big companies are down considerably, with IBM (IBM) and Home Depot (HD) taking the worst hits at the moment.
IBM is off $10.63 per share currently, for a 7.35 percent loss on the day thus far. The reason is lousy earnings, something we’ve come to expect from Big Blue in recent years.
As for Home Depot, the company continues to coin money. But, in another bit of bad housing starts continue to tank as home sales dry up. Again, that’s courtesy of an overly aggressive Fed. Mortgage interest rates are inching upward by the day. So the idea is to achieve the same numbers we saw prior to the start of the Great Recession? What’s the point? At any rate, this factor has apparently scared off investors from buying HD shares, at least for now. If the stock slips further, we’d be buyers.
As we sign off, another feeble recovery attempt seems to be in progress. But who knows how the day will end. Frankly, we probably needed a little cooling down after Wednesday’s torrid rally. But the Fed’s headlong dash into interest rate overkill territory worries us. It seems that this organization’s egghead economists and bankers favor formula over reality. Computer projections are not matching up with real life under Trump. That’s never a good sign.
—Headline image: Dated 2009, this Flickr photo of one of our favorite friends (CC 2.0 license), is by Kenneth Lu. He writes “You can find this on the second floor of Building 9 at MIT, in the corridor that should lead to Building 7 (but doesn’t).” Who says engineers don’t have a sense of humor?