It was the last day of July which brought maybe the most important news of the month. The Federal Reserve announced it would cut interest rates for the first time in over a decade. Rates were lowered by 25 basis points to 2 – 2.25%.
Meanwhile, the International Monetary Fund (IMF) reported its pessimism for global growth in the coming year. The IMF noted that trade risks and a slowdown in investment led them to revise their growth expectations for the global economy down to 3.2% for 2019 and down 0.1% to 3.5% growth in 2020.
In the bond market, the 10-year US Treasury yield fell to 1.878%, its lowest level in almost 3-years, after President Trump ratcheted up tariffs on Chinese goods. Furthering the decline was a US factory slowdown in industrial production.
The Fed sees cutting interest rates as a measure to support a currently strong US economy which is also showing signs of potential future weakness. While many companies are beating their earnings estimates, year-over-year corporate profit growth declined from a year ago. Inflation did tick higher over the month but is still relatively low from a historical perspective. Additionally, fears of a global recession, as noted in the IMF’s reduction in global growth estimates, remains.
We believe that just as the Fed has heeded caution by cutting interest rates, caution should also be taken as it pertains to the equities markets. We will continue to monitor the economic climate as it changes over the coming months.
Please contact our team if you have any questions.
Warmest Regards,
David Adefeso
References:
https://www.cnbc.com/2019/08/01/us-treasury-yields-higher-after-fed-dampens-hopes-of-more-rate-cuts.html https://www.nytimes.com/2019/07/31/business/economy/federal-reserve-interest-rate-cut.html https://www.imf.org/en/Publications/WEO/Issues/2019/07/18/WEOupdateJuly2019
https://www.nbcnews.com/business/economy/economy-added-164-000-jobs-july-n1038561 https://www.cnbc.com/2019/07/11/consumer-price-index-june-2019.html
https://www.wsj.com/articles/u-s-government-bonds-strengthen-ahead-of-fed-decision-11564586190
Legal Information and Disclosures
David Adefeso is the Chief Executive Officer of The Pacific Group. He oversees all aspects of the firm’s operations. Prior to The Pacific Group, David worked as a Wall Street Investment Banker with Wasserstein Perella & Co. and Salomon Smith Barney. There, he executed large and complex merger & acquisitions and corporate finance transactions for some of the world’s largest companies. His client base included Aetna US Healthcare, Magellan Healthcare, Allegiance Corp., HealthSouth, MedPartners, Snapple, Interpool Inc., Indigo Aviation, American TransAir, and BlueCross/BlueShields of California, Kansas City & Missouri. Prior to investment banking, David worked as a Certified Public Accountant. He attended Harvard Business School where he graduated with an MBA. Disclaimer: The views expressed are the views of David Adefeso through the period ending February 28th, 2020, and are subject to change at any time based on market and other conditions. This is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as recommendations to purchase or sell such securities.
