Really Quiet Before Rate News

It happens every time–markets barely moved prior to any Fed Funds rate cut (or a hike) and this time is no different–equity and bonds markets are barely moving–less than a 1/10% in the stock market indexes.

The 10 year treasury has moved a bit more than stocks as yields are off 2 basis points to 1.81%. This is after a first read on 3rd quarter GDP of 1.9%–seems like a Goldilocks number to me–not too hot, not too cold. Is it a number that warrants a Fed Funds rate cut? I don’t really think so–BUT they will cut–the tail is wagging the dog and the markets are ‘demanding‘ a rate cut. If the FED doesn’t cut rates there will likely be some real fireworks this afternoon.

ADP has just reported (for what it is worth) 125,000 new jobs in October–this also seems to be a Goldilocks number. For the official government jobs report on Friday the median forecast is for 75,000 jobs and this is the number markets tend to focus on (versus ADP).

So we watch and wait–we seldom, if ever, react to rate cuts etc. As individual investors there is little use in thinking you can make a investment decision that is going to beneficial based on events like this. In the ‘olden days’ (or 10 years ago) I thought I was smarter than the market many times–I wasn’t and I don’t remember ever helping myself by buying or selling prior to ‘news’.

17 thoughts on “Really Quiet Before Rate News”

  1. The Fed cuts its interest rate target range by 25 basis points, as expected, to 1.50%-1.75%, its third rate cut since July.
    Two FOMC members, Esther George and Eric Rosengren, voted against the cut preferring to keep the target rate unchanged.

  2. The stronger than expected GDP number reported this morning suggests that the American consumer is still spending, even if American business is circling the wagons. If Powell is smart, he’ll cut the rates again, (completing the three cut mid-cycle adjustment) and let the consumer spending party continue. Disclosure: long Macys and Amazon

  3. In my view, the numbers by themselves are goldilocks numbers. Yet they are quite bad. Why do I say that? The tax cuts from 2017 are the largest stimulus in 10 years. We don’t have any fiscal stimilus ammo left. Where would we be without this? I have no clue or prediction but growth needed to be higher to justify the tax cut. 3% minimum in my view.

    1. SteveA–yes I think the tax cut was kind of bogus although I will say I got a nice surprise at tax time as I got a 20% business income deduction I didn’t even know I had coming. Did I spend more because my taxes went down–NOPE–no stimulus from me I am afraid.

      1. Tim, for my land development corporation (we build large self storage, boat and RV facilities, strip centers and out-parcels) the tax cuts gave us a $325,000+ tax boost and it gave me the incentive to hire 2 new managers (and other skilled laborers) to oversee our new construction. We are even talking about building 2 large townhome communities as one of the areas I have land in is booming with new business. Recently, the largest FedEx distribution facility in the state and a new enormous Chewy headquarters/distribution facility was open about 0.80 of a mile from the property. Since the corporate tax cut will be permanent, the ongoing plan is to buy more land and grow trees in many locations we have identified until it is ripe for new development.
        I am extremely thankful for all the tax incentives and tax cuts, Nomad

        1. Nomad, you reminded me when you mentioned permanent cut for businesses. The individual tax cut has a 2026 sunset provision in it if my memory serves me. That might be largely forgotten by people until it gets closer to that time period. How big will our budget deficit be by then I wonder.

          1. Grid, I looked it up:
            The Act cut the corporate tax rate from 35% to 21% beginning in 2018. The corporate cuts are permanent, while the individual changes expire at the end of 2025.
            Hope that helps, Nomad

            1. Further info:
              These rates revert in 2026.

              The Act created the following chart. The highest tax bracket is $500,000 for single people and $600,000 for married couples. Beginning in 2018, they pay a 37% rate after exemptions and deductions. That’s lower than the 2017 rate of 39.6%.

              Income Tax Rate Income Tax Rate Income for Those Filing As: Income for Those Filing As:
              2017 2018-2025 Single Married-Joint
              10% 10% $0-$9,525 $0-$19,050
              15% 12% $9,525-$38,700 $19,050-$77,400
              25% 22% $38,700-$82,500 $77,400-$165,000
              28% 24% $82,500-$157,500 $165,000-$315,000
              33% 32% $157,500-$200,000 $315,000-$400,000
              33%-35% 35% $200,000-$500,000 $400,000-$600,000
              39.6% 37% $500,000+ $600,000+
              The income levels rise each year with inflation. As a result, more people are subject to the highest bracket than they would have been under the old method. By 2025, 8.9% of taxpayers will pay more than they would have under the previous tax law. In 2018, only 4.8% of households paid more.
              Always more twists and turns than it all seems, Nomad

              1. Nomad, so its worse than I thought, lol… The cut was kind of mixed bag for me. Tax rate went down, but lost my modest itemization abilities.

                1. Grid, we are all so fortunate to be in the greatest country this planet has ever known with every opportunity within reach of each of us. The tax cuts (both corporate and individual) were just another benefit to our companies and people that are taking risks everyday and building this world one brick (or terabyte) at a time.
                  Humble, Nomad

                1. aarod, thank you so much for your kind thoughts and updated tax information. We are all here to help each other and share salient ideas that we each can benefit from. Now if I could just find a great deal on a room in Key West, Florida on a holiday weekend 🎃
                  All the very best, Nomad

        2. Nomad–you are talking real money for me it was much more modest so it just went into savings/investment.

        3. Nomad, I’m glad to see your company put its tax saving to such productive use. I just wonder what happens when the $325,000 that the federal government borrowed to provide that tax cut needs to be repaid, who will repay that and how it gets repaid. Hopefully, there’s sufficient tax revenue generated by the investments you made to pay back the $325,000 of additional borrowing. As a preferred stock investor, I’m naturally focused on credit metrics and prefer not to see the national balance sheet get levered up.

      2. Does anyone have experience regarding VWEHX-Vanguard high yield for both yield and safety—-or stay with the preferreds?

        1. I think a mutual fund (OEF) is the wrong vehicle for a high yield bond position. Look at the sad history of the Third Avenue Focused Credit Fund if you want to know why. Stick with CEFs, ETFs, or individual bonds instead.

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