A trader looks on as a screen shows Federal Reserve Chairman Jerome Powell's news conference after the U.S. Federal Reserve interest rates announcement on the floor of the New York Stock Exchange, July 31, 2019.Markets expected a more aggressive tone from the Federal Reserve and didn't get it.August is the worst month for the Dow and S&P since 1987, according to the Stock Trader's Almanac.
The markets were tilted to an extremely dovish outcome and Powell struggled to deliver that outcome. The markets bear some of the blame: Nothing in the U.S. economic data or comments from Fed officials of late provided strong support for a continuing rate-cut narrative. As UBS said after the meeting, "the data won."U.S. economic data remain strong for the most part.
"I think the market will continue to have a very vibrant rotation," said Tim Anderson, managing director at TJM Investments. He noted that four Dow components — 3M, Caterpillar, Boeing and UnitedHealth — had together been responsible for lowering the Dow Jones Industrial Average by nearly 1,500 points in the last several months as these stocks are well off their recent 52-week highs — yet the Dow is just shy of historic highs.
Weak earnings growth — likely to be 3% this year, according to Goldman Sachs — is not worrying investors much because it is coming a year after a 23% bump from the tax plan, he said."If we need another cut, Powell will give us one," said Alec Young, managing director of global markets research at FTSE Russell. "It's the bond futures guys that messed up. There's a lot of groupthink among traders.
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