The Federal Reserve Open Market Committee (FOMC) decided, as was expected by most rational and intelligent market observers, to hold interest rates ready steady. The decision was not unanimous as three FOMC voting officials voted to dissent and preferred to raise rates. After the official announcement, FOMC Chair Janet Yellen conducted her customary press conference.
During the press conference, Yellen revealed that: “the economy has a little more room to run than might have been previously thought.” Furthermore, she said to expect a rate hike sometime before this year is over and expectations for rate hikes next year were reduced from three to two. It was also revealed that the FOMC has lowered long term growth rates through 2018 down to 1.8% from 2.0%.
Of course, preparing the market for rate hikes with lower long term growth rates, is contrary to conventional economic wisdom. To put it simply, if long term growth rates and inflation were to accelerate, then higher interest rates would be a proper monetary response. Otherwise, rates should not rise. The FOMC thus caused a fair amount of confusion amongst economists, commentators and professional investors.
All told, the markets welcomed Yellen’s comments and the FOMC decision with a 1% plus rally across the board.
My take is that: we get a single rate hike in December, the sluggish economic growth in the US will continue if Hillary Clinton (the current leading candidate) is elected, the FOMC raises rates once or twice more in 2017 and then begins to cut rates again in 2018. Should Trump begin to lead or win, we will discuss the monetary and fiscal implications at such a time
As an investor, I love indecision on the part of the FOMC. It tells me that the problem is not monetary but fiscal. It also points to the importance that productivity will play in the future. There is only one way to generate productivity, which is through technological innovation. So, absent any sort of exogenous economic, political or natural disaster, you want to be in technology in the long run. You will have to accept the associated volatility that comes with growth and technology investing, but rest assured you will be rewarded.
Take automobiles as an example. Alphabet (GOOGL), Apple (AAPL), Uber and other technology companies are all working on disruptive technologies which will change the way in which we buy, hire and drive cars. In fact, today, rumors were swirling that AAPL was courting McLaren Motors to expand its reach into the automobile industry. For AAPL, the iPhone is only a means to an end, as is the case for GOOGL and search.
Let’s expect some backing and filling the rest of the week and some buying into the quarter end next week. It is time to cut your losers and add to winners or other technology stocks as we head into the fourth quarter.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long AAPL and GOOGL — although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, a registered investment advisor specializing in high net worth private wealth management. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
Scott Rothbort is also the publisher of the LakeView Restaurant & Food Chain Report, a newsletter focusing in on food, restaurant, beverage and agricultural stocks. An individual subscription to the newsletter can be ordered at www.restaurantstox.com Furthermore; Scott is also a professor at the Seton Hall Stillman School of Business in South Orange, NJ.
– Read Scott’s intra-day thoughts and comments on Scutify for which he is a co-founder of its parent company Wall Street All-Stars, LLC
– You can email Scott at firstname.lastname@example.org
© 2016 LakeView Asset Management, LLC. All rights reserved.