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What investors are looking for from the Fed this week? They're looking for rate cuts as usual, but we had one on July 31st. We have more rate cuts priced in to the market. 10 year treasury yield down to 1.6%. You don't hold 1.6% 10 year treasuries unless you think the Fed is going lower because that's not where they are right now. S and P 500 back up almost 17% year to date. If you remember on August 9th when the Dow Jones sold off 800 points, we went on recession fears, several signals, their stocks really sold off. We are up 3.3% from that date. So it looks as if the broader financial market is saying, hey, we think we're getting more rate cuts because of this global growth picture that is both independent of tariff issues and sparked by tariff issues. That global growth slowdown that we are indeed continuing to see. Monday the Fed will release its minutes. Powell, Jerome Powell, chairman of the Federal Reserve will speak in Jackson Hole, Wyoming on Friday. That is a nice town. I've been there. We're looking for clues on rate cuts. That's what we're looking for. Anything discouraging, you might see stocks fall and you might see a safer assets go up in price.

With the Federal Reserve set to communicate to the public this week and U.S. stock and treasury prices rising, the market is making one thing clear. 

Investors want to see more interest rate cuts. 

The 10-year treasury yield is down to 1.6%, with the 3-month and 10-year remaining inverted (3-month at 1.88%). The Federal Reserve did cut interest rates July 31, much to the market's delight, but investors had already decided they want to see several rate cuts in 2019, as the inverted yield curve is perhaps the most convincing indication that many fear a recession is coming sooner rather than later.

When stock investors caught wind of the inversion, the Dow Jones Industrial Average sold off 800 points in one day on in early August. But the S&P 500 is up 3.3% from its own low on that day, with rates remaining depressed. This picture signifies investors are still looking for several rate cuts. The S&P 500 remains at a nearly 17% year-to-date gain. 

Although stocks have risen in the past week, bouncing off of the lower levels hit earlier in August, the forward one-year earnings multiple on the S&P 500 is still a touch below 17, below where it has reached this year when stocks rose on hopes of rate cuts. Lower interest rates often expand valuations, as corporate cash flows are discounted at lower rates. 

Federal Reserve chairman Jerome Powell will speak Friday in Jackson Hole, Wyoming and the central bank will release its July minutes Monday. 

 

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