(New York)

The rate cut is not like investors hoped. While the key rate was cut 25 basis point, it did not come with a wealth of dovish future guidance. Still, the cut is going to make a big impact in certain areas, not the least of which is in growth stocks. Growth stocks are likely to pull further ahead of value stocks as “In an environment where rates indeed go lower, growth stocks are just mathematically worth more”, according to MFS strategist Rob Almeida, continuing “So the terminal value for a growth company is higher, because of the discount rate, than it is for a cyclical company”.

FINSUM: The truth is that growth stocks have been doing so well because their growth is real and not just financial (just look at P/E ratios versus the Dotcom bubble). The rate cut will help keep the engine going.

(New York)

The $36.6 bn Vanguard Dividend Growth fund (VDIGX) is finally reopening its doors to new investors. The fund has been closed to new investors for 3 years, but the manager says “After careful analysis of the fund’s current cash flows, we’re confident that there is ample capacity to reopen the fund”. The fund’s five-year annual return is 12.1%, besting the Russell 1000 by 1%. The fund’s average stock holding has a market cap of $110.6 bn, and its top five holdings are McDonald’s, Coca-Cola, American Tower, Medtronic, and Microsoft.

FINSUM: Vanguard funds are enormously popular for a reason, and this is an exceptionally well-performing fund that is finally reopening. Seems like a good buy.

(New York)

While headline economic numbers for the US economy have been good, there are some signs on the margins that things may not all be well. For instance, new data out of the shipping and trucking industry looks poor. The whole US trucking industry is in bad shape because of excess inventory and soft demand. “We’re three months into a freight recession”, says a transport analyst. Relative to last year at this time, there is less demand for capacity and that, coupled with an oversupply of trucks, means there’s little to no spot freight and all truckload prices have come down dramatically”, says the CEO of a freight broker. “Freight as we measure it is growing at less than 1% in 2019”, says the owner of an industry data provider.

FINSUM: So part of this is excess inventory, but another important factor is waning demand for freight, which is a leading indicator of an economic slowdown.

(New York)

Right now is high time for investors to be worried about bonds. Bond funds have received a lot of fast money in recent months because of the well-telegraphed rate cut. According to BAML, the net inflows into fixed income funds have reached a “staggering record” of $455 bn in 2019. That compares to just $1.7 tn in the last decade. Yields have tumbled this year, with ten-year yields down from 3.2% in November to just 2.06% now.

FINSUM: The outlook for bonds got murkier yesterday with the Fed’s relative lack of dovishness. It is not entirely clear that rates are going to keep falling, so it is not hard to imagine bonds facing some losses now given how much speculation there was of a large Fed rate-cutting program.

(Washington)

The Fed meeting yesterday was not what everyone expected. While the central bank did cut rates 25 basis points, the commentary was far from what investors expected. The attitude on the Fed had turned so dovish prior to the meeting that some thought Powell might cut rates by 50 bp. The whole meeting took a different course, with the Fed saying this was just a “mid-cycle adjustment” and refusing to commit to a further cutting plan. This upset markets, with indexes all diving over 1%.

FINSUM: We think this was smart from the Fed and ultimately good for markets. It left things more uncertain as to policy and direction, which means stocks will trade more on fundamentals. This reinstates the “wall of worry” that always seems necessary to build bull markets.