Fast\nforward six months to July 2019, and we have broad-based consensus that the\nFederal Reserve is going to actually cutrates\nduring their July 30-31 meeting. The debate is no longer about whether the Fed\nwill cut rates this year \u2013 it is now about how\nmuch and how often <\/em>they will loosen monetary policy in 2019.<\/p>\n\n\n\n __________________________________________________________________________<\/p>\n\n\n\n Could the Fed\u2019s Actions Lead to a Volatile Market or Sharp Correction?<\/a><\/strong><\/p>\n\n\n\n How do you prepare for the\npossibility of volatility or a correction? In my view, it is essential not to\nlet your emotions get the best of you and instead to keep\nan eye on key economic indicators like inflation, trade and the yield curve. To\nhelp you do this, we are offering all readers a first-look into our\njust-released July 2019 Stock Market Outlook report.<\/strong><\/p>\n\n\n\n This report\nwill provide you with our forecasts along with additional factors to consider:<\/p>\n\n\n\n If you have\n$500,000 or more to invest and want to learn more about these forecasts, click\non the link below to get your free report today!<\/p>\n\n\n\n IT’S FREE. Download the Just-Released July 2019 Stock Market Outlook<\/a>2<\/a><\/sup><\/strong><\/p>\n\n\n\n ________________________________________________________________________<\/p>\n\n\n\n So how\ndid we get here?<\/strong><\/p>\n\n\n\n Federal\nReserve Chairman Jerome Powell cited growing uncertainties in the global\neconomy, which arguably was in reference to downstream impact of the ongoing\ntrade dispute between the United States and China. The trade impasse, coupled\nwith an economic expansion now in its 10th<\/sup> year, have resulted in slow\ndeterioration in business sentiment and global decline in manufacturing PMIs \u2013\na leading indicator. Even though in my view the base\ncase for U.S. and global economic growth remains 2% or more for 2019, the Fed\nappears poised to act proactively to protect against downside risks. <\/p>\n\n\n\n Then there\u2019s the issue of\ninflation. Mr. Powell noted this week that there was once a time when central\nbankers were primarily concerned with too much inflation in the economy. Today,\nthe challenge is just the opposite \u2013 not enough inflation even as the unemployment\nrate hovers below 4%.3<\/sup> As you can see on the chart below, before the\n2008 Financial Crisis inflation would regularly run higher (above the red line)\nthan the target 2%. But since the Financial Crisis, from 2009 to today,\ninflation has struggled to sustain above 2%. <\/p>\n\n\n\n Inflation Has Struggled Over the Last Decade to\nRemain Above 2% (red line)<\/strong><\/p>\n\n\n\n Source: Federal Reserve Bank of St. Louis4<\/sup><\/em><\/strong><\/p>\n\n\n\n It is debatable whether\nlowering rates now would provide any trigger for inflation, as I would argue\nthat lower rates probably won\u2019t lead to wage pressures and definitely won\u2019t\nlead to growth in M2 money supply. Instead, lowering rates now seems to be a\nmove designed to sustain an expansion that is dying of natural causes, in my\nview. Business cycles have historically always come to an end. <\/p>\n\n\n\n The stock market offers a\ndifferent narrative as it relates to rate cuts. In December of last year, the\nS&P 500 had touched bear market territory just days before Mr. Powell made\nhis announcement to be \u201cpatient\u201d in the Fed\u2019s monetary policy approach. Almost\nto the day that the Fed changed their stance, the market started to rally and\nis up over 20% year-to-date (as I write). In my view, there is no denying that\nthe market\u2019s current rally is tied to the Fed\u2019s actions. <\/p>\n\n\n\n Bottom Line for Investors<\/strong><\/p>\n\n\n\n What I believe we\u2019re left with\nnow is a heightened possibility of a negative surprise. What if the Fed does\nnot lower interest rates at the July meeting? What if the Fed only chooses to\nlower rates once in 2019? Will the market be disappointed, volatile, and\npossibly enter another sharp correction? I believe so. <\/p>\n\n\n\n I think the Federal Reserve has\neffectively painted themselves into a corner where anything less than two rate\ncuts in 2019 will result in a \u2018tantrum\u2019 in the equity markets. Strong earnings\nreports could neutralize the impact of not lowering rates two times or more,\nbut I strongly believe now that the stock market\u2019s fate in 2019 is wound up in\nFed policy. <\/p>\n\n\n\n Now the question remains, how do you prepare for the possibility of volatility or a correction? In my view, it is essential to keep an eye on key economic indicators like inflation, trade and the yield curve. To help you do this, we are offering all readers a first-look into our just-released July 2019 Stock Market Outlook report.<\/a><\/p>\n\n\n\n This report\nwill provide you with our forecasts along with additional factors to consider:<\/p>\n\n\n\n If you have\n$500,000 or more to invest and want to learn more about these forecasts, click\non the link below to get your free report today!<\/p>\n","protected":false},"excerpt":{"rendered":" With an interest rate cut likely, Mitch looks at how the markets and economy will react <\/p>\n","protected":false},"author":3,"featured_media":7430,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-8117","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8117","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=8117"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8117\/revisions"}],"predecessor-version":[{"id":10736,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8117\/revisions\/10736"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=8117"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=8117"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=8117"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}![\"\"](\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/2019-07-20-MOTM-Image-1-of-1-1024x412.png\")
<\/figure>\n\n\n\n