The Fed poured cold water on its growth outlook this week, all but taking the possibility of a 2019 interest rate hike off the table.
Following reports of slower growth in China and Europe in recent months, the FOMC lowered its U.S. growth outlook for 2019 and 2020 on Wednesday, to 2% and 1.9% respectively.
Chairman Powell also said that U.S. economy was falling short of inflation targets and the Fed’s internal projections for two rate hikes in 2019 fell to zero.
The move came almost three months to the day that the FOMC unanimously (and controversially) raised interest rates, sparking a massive wave of selling last December.
Lower for Longer Rate Environment
Investors initially sold stocks in favor of bonds following the report from Chairman Powell and U.S. Treasury spreads narrowed, but did not invert. Later in the week, traders saw value in stocks again, with the notion that lower interest rates help far more companies than are hurt by it.
One group that stands to benefit from lower interest rates is dividend stocks, as yields will likely face less competition from fixed-income products for the remainder of 2019.
Away from the Fed, Biogen (BIIB) was a big loser this week, falling 30% a day after halting Phase 3 trials for an Alzheimer’s treatment, because of poor clinical results. The product was the key piece of the company’s biotech pipeline, leading to a $15 billion overnight loss in market value.
The Week Ahead
Looking ahead to next week, the housing sector could be in focus. The group is clearly a beneficiary of a dovish Fed and we’ll get several looks at sales and pricing in the housing sector, in addition to monthly housing starts and building permits. Finally, KB Home (KBH) and Lennar (LEN) will post earnings.
Here is a list of other notable names scheduled to announce quarterly results next week:
On the economic front, we’ll get the final reading of fourth quarter GDP growth on March 28. The last measure of that figure was 2.6%, which is well above the FOMC’s new growth targets for 2019 and 2020.
The latest actions of Chairman Powell and the Fed leave investors with a tough decision:
Growth is slowing, but interest rates are likely to remain on hold… so where do you put new cash to work now, especially if you just received a tax refund from Uncle Sam?
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