Will it soon be time to take action?

Will it soon be time to take action?

 

• Today is Fed Day, the day that the Federal Open Market Committee (FOMC) releases its update on its interest rate outlook. Earlier this afternoon, officials moved closer to lowering interest rates from their two-decade high by signaling the likelihood of a September rate cut.  The US central bank’s Federal Open Market kept its benchmark rate in a range of 5.25% to 5.5%, a peak reached a year ago, at the conclusion of its two-day policy meeting. Policymakers acknowledged that inflation has made progress toward their 2% goal — a prerequisite for rate cuts — following tame readings on consumer prices for the month of June. With unemployment also edging higher, officials indicated it’s appropriate for policy to become less tight soon. However, even if there is a September rate cut, it does not mean that other actions will immediately follow suit.

 

• As for the markets, the Mega Cap tech stocks have had a tumultuous month having sustained losses in excess of $1.5 trillion before recovering in recent days. Alphabet, the parent company of Google and YouTube, reported a slowing of sales while Tesla announced that its profitability took a hit due to a reduction of revenue as well. Microsoft meanwhile has modestly sold off today as it reported a massive increase in capital outlays. However, a positive outlook from chip stock Advanced Micro Devices (AMD) has spurred a broad tech rally with Nvidia rising by almost 12% today and dragging along most tech players with it. Notwithstanding AMD’s upbeat outlook, reported results in the tech sector have largely been beneath expectations.

 

• Recent readings on the job openings came in above forecast last month with also May’s reading being revised higher – defying the recent softening in the labor market. Available positions, known as JOLTS, edged lower to 8.18 million on Tuesday, exceeding most estimates. The reports showed that solid demand remains for workers even as unemployment rose for a third straight month in June. Meanwhile, the number of vacancies per unemployed worker, a closely watched ratio by the Fed, held steady at 1.2 – and in line with levels seen prior to the pandemic. However, appreciable concerns have arisen regarding the accuracy of the JOLTS and vacancies per worker data as response rates to the government surveys have declined severely over the last several years.

 

• On the political front, uncertainty remains with the presidential election less than 100 days away. The week after Trump’s assassination attempt, it appeared as though former President Trump was on his way to a landslide victory. However, with President Biden dropping out of the race and Vice President Harris stepping in, the Democratic party has fervently gathered behind the current VP. Most polling now shows the race to be a dead heat. It is unclear whether this polling bounce is just a honeymoon period for Harris and the Democrats or whether it will be sustained. For the time being, substantial uncertainty exists regarding the likely outcome of the Fall elections.