The Clash Over Interest Rates
Jerome, you’ve got to let me know. Should I stay or should I go?
The Federal Open Market Committee is meeting this week to decide the fate of U.S. monetary policy. In other words, the Fed is looking at interest rates. Federal Reserve Chairman Jerome Powell will hand down the central bank’s decision on Wednesday afternoon, and all of Wall Street will be watching closely.
If Powell cuts interest rates in June, the stock market will likely boom.
So, come on and let me know: Should I stay or should I go?
The odds are that the Fed will hold pat this week, keeping interest rates steady for another month. Fed funds futures are pricing in only a 20% chance of a rate cut this week.
Kathy Bostjancic, chief U.S. financial economist at Oxford Economics, believes that there isn’t enough data yet to justify a rate cut at this time. “The Fed might not be prepared to confirm such validations given the hard data do not yet signal a sharp slowdown in economic activity.”
But Jim Grant of the Grant’s Interest Rate Observer newsletter believes otherwise. “I think they are going to cut in June. That’s my view. They’ll cut preemptively in June,” Grant told CNBC.
This indecision’s bugging me.
If the Fed cuts, it could mean trouble. If they don’t, it could be double.
But you’ll have to wait for Wednesday to know.
Should you stay or should you go?
It’s always tease, tease, tease.
The “stay-or-go” narrative taking hold of Wall Street this week is a misnomer. Of course you should stay. Some of you with 401(k)s and similar retirement vehicles really don’t have a choice. But, if you have done your due diligence and invested in solid companies with bright prospects, now is not the time to second-guess your investment strategies.
Now is the time, however, to consider taking some profits off the table on those more speculative investments you have going. Maybe pull back a bit on those risky initial public offerings, park some cash in gold or safe-haven sectors and prepare for the market’s short-term reaction to the Fed’s non-action.
This will be a short-term reaction, after all. Right now, the Fed is all but guaranteed to cut interest rates next month. And that should be good for stocks.
The bottom line: If you can afford to ride out the short-term bumps in the road, you will be better off over the long term. And if you’re really worried about the doom-and-gloom stories taking over the financial media, there are steps you can take to prepare for the worst right now [Note: link to 10X promo].
The Good: Bitcoin Is Back, Baby!
Are you crushing on crypto? If not, you’re missing out. Bitcoin hit a 13-month high over the weekend, taking out $9,000 for the first time in more than a year.
Traders are favoring this much-maligned investment over bonds and gold as a safe-haven investment amid the current market uncertainty.
Part of the appeal comes from the U.S.-China trade war, with investors seeing an edge for bitcoin’s decentralized nature amid the growing international tensions.
Recently, however, cryptocurrencies have received massive institutional support. Facebook Inc. (Nasdaq: FB) announced plans for a digital coin last week, with more than a dozen companies coming on board, including major players Visa Inc. (NYSE: V), Mastercard Inc. (NYSE: MA) and PayPal Holdings Inc. (Nasdaq: PYPL).
You don’t need to wait until bitcoin tops $10,000 before you get in. Banyan Hill’s crypto specialist Ian King can get you started right now [Note: link to CYP promo].
The Bad: Disney Drops a Slipper
If the shoe fits … David Miller at Imperial Capital is concerned.
According to Miller, The Walt Disney Co. (NYSE: DIS) is having a bit too much fun at the grand ball, and he’s holding back on that glass slipper he just happened to pick up on the stairs.
Citing valuation concerns, Miller cut DIS to “in line” from “outperform” but kept his $147 price target.
The Imperial Capital analyst believes that DIS is “now trading at record multiples” and that movies like Avengers: Endgame and the opening of two Star Wars parks are now priced into the shares.
As for catalysts for future growth in DIS, Miller believes that stock buybacks in the next year could help boost the shares higher.
Great Stuff thinks that Miller is missing out on the other glass slipper that Disney has hidden in its pocket: Disney+.
The Ugly: Aw, Shucks
If you’re invested in corn futures — and who isn’t, right? — then the erratic and wet weather plaguing the heartland of America will likely be a boon. If you’re a farmer whose livelihood depends on raising corn, not so much.
Corn futures hit their highest settlement since June 2014 on Friday, rising 9% on the week.
But it’s not demand that’s driving corn higher — it’s a dwindling supply chain. In storm-ravaged states like Illinois, millions of acres are left unseeded.
According to CNBC, James McCune, a farmer from Mineral, Illinois, left about 85% of his corn fields unplanted due to inclement weather.
Illinois farmers are attempting to look at the bright side, however, and are hosting a “Prevent Plant Party.” It’s kind of a happy/sad event where farmers swap stories and drink beer to deal with the “there’s always next year” attitude plaguing Midwestern farmers this season.
The U.S. Department of Agriculture is forecasting the smallest corn crop in four years. And it’s not just farmers that are affected. DowDuPont Inc. (NYSE: DD) saw a 28% drop in quarterly profits from delayed seed shipments. Farming equipment manufacturers and fertilizer/chemical companies are also expected to take a hit.
So, corn futures are in, and agribusiness stocks are out.
Ouch. The New York Fed’s Empire State business conditions index took a nosedive in June. As you can see from the chart, the index plunged 26 points to a reading of negative 8.6 for the month — the worst reading in more than two years. If Fed Chair Jerome Powell was looking for data to justify an interest-rate cut this month, he wouldn’t have to look far.
2019’s Hottest IPOs and Beyond!
We have a new expert here at Banyan Hill, a guru in the field of initial public offerings (IPOs).
Until next time, good trading!