U.S. Market Delicately Balanced on Fed and Trade

U.S. index

As of this morning, we have yet to see U.S. index figures go either way, although DJIA spiked some 40 points early before settling back down – but there was decidedly negative movement in world stocks overnight, and some “weakening,” as the U.S. News and World Report put it yesterday.

“U.S. markets had advanced for five straight days since the Federal Reserve signaled it is open to cutting interest rates, but weakened on Tuesday amid concerns that the U.S. trade spat with China could be prolonged and hurt growth in the world’s two biggest economies,” wrote AP reporters.

Indeed, markets rose throughout last week as analysts talked about investors expecting a shot in the arm from the Fed in the form of an interest rate cut, which goes against the long-term strategy of gradually raising interest rates with a healthy economy.

It’s not lost on many of those who have been following the markets for more than, say, a few months, that interest rates are already extremely low, and there are concerns that the Fed is discarding healthy traditional cycle behavior in order to stave off a recession or some other financial catastrophe.

A clear-eyed look at balancing Fed behavior with international trade problems would show that one is likely to be much longer lasting and wider-ranging than the other.

In fact, part of a logical approach to long-term markets supports the idea that the Fed, while capable, can’t work magic.

“If our bird is the markets, then the trade war is the latest cause of stress and not everyone believes the Federal Reserve can prescribe an antidote this time,” writes Karen Tso today at CNBC.

Part of the current drama seems to be whether the Chinese president will meet the American president at the G20.

Meanwhile, U.S. News and World Report reports trouble in Hong Kong that brought markets down on that side of the world last night.

“Global shares retreated Wednesday and Hong Kong’s Hang Seng index fell sharply as thousands continued protests against proposed legislation that many city residents fear could further erode the territory’s legal autonomy,” wrote Elaine Kurtenbach early this morning. “In midday trading in Europe, Germany’s DAX lost 0.4% to 12,104 and the CAC 40 in France dropped 0.6% to 5,377. Britain’s FTSE 100 also skidded 0.6% to 7,356. U.S. shares were headed for a weak open as the future contract for the Dow Jones industrial average lost 0.2% to 26,017 while that for the S&P 500 also declined 0.2% to 2,882. The Hang Seng lost 1.7% to 27,308.46 as thousands of protesters, most of them young, prevented lawmakers from entering Hong Kong’s government headquarters Wednesday.”