Is the Fed Getting Ready to Surrender?
With only one week to the end of the second quarter, we couldn’t be more pleased with how Q2 is shaping up. The big news this week came out of the Federal Reserve (Fed) after its meeting on Wednesday. The Fed’s statement was a clear signal it is now moving closer to easing interest rates which investors took very positively. With only a week left in the quarter, money flowed into the markets driving prices higher.
Stocks (and more broadly “risk assets”) continue to rise after the Fed kept rates unchanged but hinted it could ease policy in the months ahead. While not saying outright that a cut was ahead this year, the Fed dropped the word “patient” from its statement and said it would “act as appropriate” to sustain the economy. The Fed’s interest rate projections indicate that half the FOMC members anticipate two rate cuts this year. This comes as a bit of a surprise since investors had expected only one rate cut in December. Two rate cuts with one possibly happening next month sent a jolt through the markets, driving investors back into stocks. You might remember the same thing happened earlier this year when the Fed signaled it was done raising interest rates. Whether because the Fed is concerned with a slowing economy or perhaps is feeling the pressure from President Trump, who this week threatened to fire the Chairman of the Federal Reserve, it is evident the Fed is now fully committed to economic accommodation and easing interest rates in the months ahead.
In company news, Boeing and Airbus are going head-to-head at the annual Paris Air Show. In its first day, Boeing received absolutely no orders which created considerable concern. However, by the end of the week it looks like both Airbus and Boeing logged $35 billion each in commitments. Perhaps the big surprise was that Boeing scored a stunning order of 200 737MAX planes from British Airways which was an absolute rout for Airbus. Also reported this week, and perhaps poor timing in my opinion, Boeing announced it is looking to speed up testing for new aircraft by easing requirements. It looks to reduce the scope and duration of certain costly physical tests to certify its new aircraft. Specifically, it looks to cut hours off airborne testing by using computer models to simulate flight conditions, and then present the results to the FAA as part of the basis for certification. I’m not sure many will find this solution palatable given recent events.
In other news, Discover Financial announced it is eliminating all deposit account fees. This move applied to customers with checking, savings, money market, or CD accounts with Discover Bank. In addition, there will be no fees for monthly maintenance, checkbook orders, replacement of debit cards, insufficient funds, excessive withdrawals, falling below minimum balances, and stop-payment requests. What makes this remarkable is that banks make a considerable amount of revenue from these fees. We hope other banks take notice and adopt similar practices.
Also interesting, Amazon announced it is offering a new surveillance service. While we all joke Alexa is secretly spying on us (and there is evidence to suggest this could be true), Amazon wants to help protect your property while you are away. The company wants to use its network of delivery drones to keep watch over customers’ houses by forming a flying Neighborhood Watch program. Customers could request that Amazon’s drones visit their property hourly, daily, or weekly, while the drones would look for signs of a break-in, such as broken windows, doors left open, and intruders lurking on the property. This sounds a bit far-fetched but this is the future we’re hurtling toward.
In closing, I wanted to share a mystery that has been bugging art aficionados for some time. In 2017, Christie’s broke a record by selling a work by Leonardo da Vinci for $450 million. The work entitled “Salvator Mundi” thought to be the only remaining work by Leonardo da Vinci in private hands, disappeared shortly after its sale. The purchase was made anonymously leaving many wondering who purchased the artwork and where it might be. It turns out leaked information leads us to Saudi Crown Prince Mohammed bin Salman, one of the richest men in the world. The Saudi family has an estimated net worth of $1.4 trillion. And in case you’re wondering, the painting resides on his $500 million superyacht floating somewhere in the Mediterranean. Now you know.
Bruce J. Mason, MBA
Senior Vice President | Harvest Financial Advisors, LLC | 513.779.3030 | 800.361.0329