Stocks Close Higher, Fed And Interest Rates On Deck Today
Stocks closed modestly higher yesterday, ahead of this afternoon's Fed meeting on interest rates.
While the U.S. economy remains strong (it's the envy of the world right now), growth concerns in Europe, China, and elsewhere, along with the cutting of interest rates around the world is reason for the Fed to cut rates as well.
For one, the cut in interest rates will help the U.S. rebuff economic weakness in other countries. And two, with the pervasiveness of near zero, and negative interest rates abroad, it's clear that our interest rates are unnecessarily too high. With the enormous demand we have for our treasuries, we do not need to offer such high yields. And a rate cut will serve to remedy both of those points.
The Fed meets today at 2:00 PM EST. They are widely expected to cut rates by a quarter point. And while a half point is unlikely, you never know. Of course, there's no guarantee they'll do anything. But the odds are greater than 90% that we do see a quarter point cut this afternoon.
In other news, it was great to hear that the U.S. and Japan have agreed to a partial trade deal. This centers on reducing trade barriers, which would result in cutting tariffs on U.S. agricultural products, while cutting levies on some Japanese industrial goods. It also focuses on digital trade. This agreement will not require congressional approval. While the President has notified Congress of his intentions, he is able to do this on his own under current trade law provisions and executive agreements, allowing the administration 'fast-track' approval process.
This is an important distinction since the USMCA deal (which is to replace NAFTA), does need congressional approval, but has still not been brought up for a vote in the House of Representatives, even though the U.S., Mexico, and Canada signed the agreement back in November of last year. But with the U.S. Chamber of Commerce saying there's enough votes in the House to approve the USMCA deal, it's expected to be brought up for a vote later this month or October. And it's expected to pass the Senate.
Of course, the deal that everybody is really waiting for is a U.S.-China trade deal. Face to face talks will take place in early October. And while few are expecting a full-blown trade deal, there's plenty of hope that a lessening of tensions or a 'trade-truce' can be seen.
Lots of great things on tap for this month and next.
Between our already strong economy, low interest rates that are expected to go even lower later today, and the aforementioned trade opportunities that should usher in years of additional growth and prosperity, this is truly an historic time for our economy.
And that should translate to new records being set in the stock market.
So make sure you're taking full advantage of it.
See you tomorrow,
Kevin Matras
Executive Vice President, Zacks Investment Research
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