EmailThe Fed will make its policy announcement at approximately 2:15 ET today. Expectations of significant action have moderated.
There is now quite a bit of talk that the Fed won't take any substantive action at today's meeting. Some surveys of economists suggest that only about one-third expect further easing today.
It is hard to believe, however, that the stock market isn't priced for some degree of easing. After all, the stock market has been drifting higher through July on expectations of Fed action. Commentator after commentator on TV has said that the downside on stocks is limited because the Fed has the market's back.
Second quarter earnings have been disappointing and third quarter estimates have now been lowered to negative territory for the S&P 500 in aggregate. Economic data have been poor and no improvement in growth is likely for the second half of the year. Yet, the stock market has shrugged off these factors because of presumed imminent central bank action.
The steady stream of bearish European news continues. A July PMI manufacturing survey for the eurozone fell to a three-year low. A similar survey for the United Kingdom was also weak and one for China showed manufacturing contracting, but at a slower pace than in June.
The July ADP report showed private payrolls rising 163,000. That was higher than the expected 125,000 and suggests a chance of a July payroll gain of over 100,000. That would be the strongest report since March but a long way from "strong." The US ISM manufacturing survey is due at 10:00 a.m. ET and is expected to be near 50 for the second straight month. A level of 50 means manufacturing is treading water.
The Fed announcement today could produce a volatile short-term reaction. The attention will quickly turn, however, to the European Central Bank policy announcement Thursday, and the July payrolls report on Friday.
There is good long-term value in stocks, but current economic and earnings trends are uninspiring and the stock market may well be at risk in August if the Fed and monetary policy are seen as less of a bullish factor because of today's policy announcement.
Founder and Chairman, Briefing.com
