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July Rate Cut? Wait for the Fedets complete capitulation to become aggressive



Financial markets now expect the Federal Reserve to begin ratcheting down rates from 2.25-2.50% in July. It was noteworthy was the "de facto stimulus" associated with the Fed flip from the rate hike to judge neutrality for only six months.

  crazy-rate-change

Reasonable criticism of Fed's "too low for too long" tariff policies, the weak economic data can support the easing. Imports (-2.7%) and exports (-4.2%) were concluded. And global production is the weakest it has been since 2012.

  chart-2-global-manu

Similarly, corporate profits are easier. Earnings for the first quarter came to -0.4%. The analyzes are just as worrying -2.1% for the second quarter.

In fact, the earnings estimates can be too optimistic. Citi's financial surprise index has mostly been definitely negative.

 citi-econ-surprise

Maybe the biggest kicker? Jobnedgangen. According to the private payroll processing company ADP, companies created only 27,000 new jobs in May. It was the weakest reading when job losses were tied up in March 2010.

Even Fed's own recession model indicates problems. The 30% probability marker preceded the three previous recessions. Will the fourth time be an unfortunate charm?

Remember, 30% is likely to matter in recession prediction games. This is because the New York Fed model is a delayed indicator.

 <meta itemprop= In fact, US big cap stocks remain within the spear distance of an all-time summit.

However, many can misunderstand the tea leaves. When the Fed shifts from tightening to neutrality to ease, the Fed is often powerless to stop the assets from repricing lower.

The shocking truth? The first few cuts after a tightening cycle are called the last three recessions.

 fed-funds-over-time

a few "insurance rates" cuts and a possible trade agreement with China are positive games changers? From my vantage point, these will not turn an appetite for impact risk.

Consider the stock market peaks in 2018 and 2019. It has been almost half a year since a meaningful breakout for US stocks. The Wilshire 5000 shows just how little progress has been made since the big watermark in January 2018.

  wlsh

Too many have become accustomed to the idea that bad news is good news. The weaker the economy, the more stimulus. It may seem that valuations are cheaper than dirt or when an expansion is in its early stages.

Unfortunately, US stocks may have to return to their average before true offers come. The idea that the stock market will avoid recovering its trend line indefinitely is dangerous. [Regression-to-trend   stance remains intact. Not only is our overall risk premium allotment lower than it would otherwise be, but the nature of these risk provisions is barring a credit cycle tail. </p><div><script async src=

We have eg. A number of individual preferred stocks with higher quality credit ratings. Others may choose the listed fund route with an index tracker such as Van Eck Preferred Ex Financials (NYSEARCA: PFXF).

We also like yield aristocrats and lower volatility producers. ETF enthusiasts may suggest funds such as Vanguard Dividend Appreciation (NYSEARCA: VIG), ProShares S & P 500 Yield Aristocrats (NYSE: NOBL) or Invesco S & P 500 High Dividend Low Volatility (NYSEARCA: SPHD).

We also expect to buy a possible dip in US treasuries. Get assets hedge stock price as well as long-term government bonds.

Overall, there will be a big opening to become more confident with shares. It won't be on a July rate cut. Or on another in September. Or a third in December.

The best time to take bigger stock risks will come when the Fed is capitulating. When the Fed goes into zero rate policy (ZIRP), Negative Rate Policy (NIRP) and its most massive quantitative light program to date, the central bank's unambiguous surrender is likely to launch an incredible opportunity.

Publication : Gary Gordon, MS, CFP is chairman of Pacific Park Financial, Inc., a registered investment adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc. and / or its customers may hold positions in ETFs, funds and / or investment assets as mentioned above. The commentary does not constitute individualized investment advice. The statements offered here are not personal recommendations for buying, selling or holding securities. In return, issuers of listed products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising on the ETF's expert site. ETF Expert Content is created independently of advertising conditions.


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