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The Fed May Be Done Raising Rates in 2018, Bad News For The Banks
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Big Week For Data
The S&P 500 finished the day down about 20 bps, at 2,896. For the most part, it was a rather dull day on the surface. I think the setup for stocks continues to be very bullish. The Atlanta Federal Reserve’s GDPNow is tracking the third quarter at 4.7%. That is a strong reading for this point in the quarter. It will be a big week make no mistake, with the jobs report this Friday. Expectations for this month is +195k with the unemployment rate of 3.8%. I talk about this a bit in the member video today, but should the employment picture be weaker than expected, or should the unemployment rate rise; it may give the Fed enough of a reason not to raise interest rates at its September meeting.  It Is A Big Week For Rates, Banks, And Apple Suppliers
Libor Flattens
If we take this one step further, the market may already be telling us rates are down rising for 2018. 3-month US Dollar Libor has flatten out, and has stopped rising since the end of April! The TED spread, which is the difference between the US Dollar Libor and the US 3 Month Treasury, has fallen to just 22 basis points through August 28. The chart below also shows rather clearly, that Libor rates have risen well in advance of Fed rate hikes. The fact that Libor rates have stopped rising may even suggest the Fed doesn’t raise rates this September or the balance of the year.
Inflation is Tame
Again inflation is far from runaway, with trimmed mean PCE now at 1.99 percent.
While our real-time inflation gauge – oil, has fallen from its July highs of almost $75 to $69.50 currently. That falling oil price likely lowers the inflation reading for August CPI.
I can’t help but think this would be terrible news for the financials, as the flattening yield curve has already hurt their stocks. The 5-year – 2-year treasury spread is just 10 bps, while the 10-2 year spread is less than 25 basis points.
2018 was the year the banks were supposed to see the significant upside as earnings growth surged. At least or the first nine months of the year it merely has not materialized. At this point it is likely not to happen. Unlock Deeper Insights with Exclusive Member-Only Video Content on The Market Chronicles YouTube Channel – Just $34.99/Month
If the Fed puts things on hold for the last four months of the year, and decide not to raise rates the banks may have plenty of room to fall.
I know my viewpoint is like a fish swimming upstream, but that is what I do best. Remember I’m the lunatic in December that said the 10-year would rise to 3%, GDP would grow at 4%, and Oil would rise to $75.
I guess we find out in a matter of weeks, whether I was dead wrong or right.
-Mike
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Michael Kramer is the Founder of Mott Capital and the creator of Reading the Markets.
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#fomc #fed #banks #stocks #interest #rates #libor
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Charts used with the permission of Bloomberg Finance L.P. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
Rates Surge Stocks Drop Following Hot Job Report, CPI Next Week
Mott Capital's Market Chronicles January 10, 2025 12:02 PM