THE "NEW NORMAL''

Fed Chairman Powell finally said it! In his testimony to Congress’s Joint Economic Committee on November 13, Powell said:

“I think the new normal now is low interest rates, low inflation and probably lower growth.”

Since the Great Recession, establishment economists have been consistently beating the drum calling for higher interest rates, all the while rates have been falling lower or chopping sideways at lower levels than the predictions. We now have someone from the economic establishment calling lower interest rates normal…a remarkable change coming from the Fed Chairman and a reversal from consensus economic thinking over the past eleven years.

Not only has the Fed made a major change in interest rates policy, but some recent disruptions in the financial markets have forced them to start printing money again.

I attempted to draft a timeline of the Fed’s actions over the past two years and what it meant to the markets, but I got so deep in the weeds that I pitched it and decided to just write my assessment of what I believe investors need to do considering the recent changes by the Fed.

TIME TO STOP PLAYING DEFENSE?

The market has clearly started off in November with a bang. We made it through October without a hiccup and all the major stock indexes have recently set new all-time highs. Economic indicators, for the most part, are trending positive.

The consumer continues to drive a strong U.S. economy and lower interest rates have given housing a boost…normally a very positive sign for the economy. The drop in interest rates driven by the change in Fed monetary policy has finally started working its way through the economy and producing some “green shoots” such as a boost in single-family housing starts and high homebuilder sentiment, suggesting a recession is not in the cards for some time.

A recent report from TD Economics outlined their case that the slump in manufacturing in the US, primarily caused by the trade uncertainty, is not likely to bleed over into other sectors of the economy and cause an economy-wide recession.

“Manufacturing is not the driver of economic growth that it once was. It accounts for a small and decreasing share of overall economic activity and an even smaller segment of employment. The sector has contracted more that once in the post-global financial crisis period, while overall economic growth continued unabated.”

Robert Shiller, the Noble Prize-winning economist from Yale believes a recession may be years away because “Americans are still opening their wallets.” The normally somewhat bearish professor said in a CNBC interview that:

“he’s sticking with the idea that the economy and markets should have a lot of runway left for gains if President Trump remains in office due to his pro-spending, pro-business narrative.”

Please don’t beat me up too bad for the political statement…that is just what Shiller said.

WHAT DO THE CEO’S SAY?

Transcripts from earnings reports by the CEOs of public companies give us real-time confirmation on many issues.

Walmart CEO Doug McMillan said in the latest earnings call that Walmart is “prepared for a good holiday season” and that “we continue to see good traffic in our stores.”

D. R. Horton, Inc., the nations largest homebuilder reported this week closing 16,024 homes last quarter, up 10% from 14,674 closings in last year’s fourth quarter. David Auld, president and CEO said:

“When you look at what drives homebuilding, which is job growth and overall economy, we feel very, very good about what’s happening there…right now, the market feels really, really good.”

WRAP UP

So, the signs are beginning to point toward a stronger market through the year-end. There will probably be some moments of volatility along the way, but we intend to use those opportunities invest any cash that has been accumulated from the sale of individual stocks in recent months.

We hope you are preparing for a wonderful holiday season. If there is anything we can do to make your holidays more enjoyable, please let us know.

Sincerely,

Dave Crouch Kim Blackburn Kay O’Connell

Registered Principal Branch Operations Manager Financial Advisor

Financial Advisor

Buffett Quote:

“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”

Any opinions are those of Dave Crouch and not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

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