THE FED DID AS EXPECTED EVEN AS GDP SURPRISED ON THE UPSIDE

The first print of third quarter GDP validated my long held view of today’s recessionary fears are vastly overblown.  The economy expanded at a 1.9% annualized rate versus the consensus view of a 1.6% pace.  Perhaps the most significant aspect of the report is disposable income rose at a 2.9% rate after a 2.4% pace in the prior quarter.

This in turn supported consumer spending which was the catalyst for the higher than expected print. The Fed’s preferred inflation measure rose by 2.2%, nominally higher than the 2.0% Fed mandated speed limit.

The private sector ADP Employment Survey was also stronger than expected, indicating a 125,000 increase in jobs in October.  I must write September’s increase was revised nominally lower reflecting the moderate gains that occurred in September’s BLS report.

Speaking of which tomorrow the BLS releases its employment report.  I am certain the Fed had access to this data for yesterday’s meeting.

As widely expected, the Committee lowered again lower rates by 0.25%, the third such reduction of the year.  It also indicated that it will pause for the intermediate future to determine the impact of it prior actions.  The Fed also confirmed what the data above suggests…a moderately strong economy where job and income gains are supporting the consumer with inflationary expectations little changed.  Manufacturing and trade are noted as the “uncertainties.”

Markets were little changed on the outcome.  Equities staged a late day rally following the press conference where FRB Chair Powell stated he will not increase rates if inflation remains persistently cool.

Changing topics, earnings have been mixed.  In my view perhaps the biggest surprise is the general lack of volatility following profit/revenue misses of three of the five company cohorts known as “FAANG.”  Several other high profile tech companies that have missed earnings have been crushed anywhere from 15% to 45%.  Wow!  Moreover the two FAANG that exceeded expectations also had minimal volatility on a relative basis.

What is this suggesting?

Last night the foreign markets were mixed.  London was down 0.90%, Paris down 0.43%  and Frankfurt down 0.29%.  China was down 0.35%, Japan up 0.37% and Hang Sang up 0.90%.

The Dow should open moderately lower as Chinese officials are casting doubts about reaching a comprehensive long term trade deal.    The 10-year is up 10/32 to yield 1.74%.

kent
The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.