It's a Fed frenzy on Wall Street.
Stocks plunged after the Federal Reserve decided to slash its benchmark interest rate by a quarter point, a highly anticipated decision seen by many as an "insurance cut" to hedge against hawkish U.S. trade policy and slowing global growth.
Some market watchers say it's a turning point, one that could alter the layout of U.S. and global markets moving forward.
Here's what six experts had to say as Fed Chairman Jerome Powell's press conference got underway:
Josh Brown, CEO of Ritholtz Wealth Management, told investors to "relax," referencing a moment over two decades ago that reminded him of this one:
"From a market perspective, an investing perspective, … the first thing I looked at when [the Dow Jones Industrial Average] triggered down 400 and change? I looked at the stocks that had big beats on earnings last week, and I wanted to see if those gaps would hold, and they did. The big companies that had a lot of good results, you didn't see selling there. So, it was an index thing, it wasn't an investor thing. … It's algorithm. That's OK. We've come to expect that. That's 90% of trading now. … 100% [I would be a buyer on weakness], because [Powell]'s saying two things: he's saying it's midcycle, it could be one-and-done, but then maybe it's not. That's what he should say. I'm not a fan of the press conference anyway. I think it's unnecessary. He says one remark that he didn't say last time and then we pin him down to that until the next meeting. So, I wish they weren't doing it. In my day, we had a briefcase with papers falling out of it and we loved it. It was good enough. So, in this case, he's saying both things, and that's what he should do. ... If you're going to be data dependent, we don't have data in October yet, so why should he telegraph what he will do? He's saying what he could do. Perfectly rational. And the one last thing I want to point out: there's precedent for this. We've talked about it on this show in recent weeks. In 1995, they had to give back what they took away in '94. [Former Fed Chairman Alan] Greenspan shocked the bond market in '94. The S&P [500] did a quick 18% swan-dive, totally unprepared for this overnight hike. And then, in mid-'95, right around a period like this in the summer, they had to give it back. And you know what? We had four more years of economic expansion, four-and-a-half more years of a bull market for stocks. And so why does he have to tell you what he's going to do in December? Let's see what's going on. Maybe the missiles are in the air in trade terms, or maybe we've resolved it. Why do we have to have the answer today? Everyone needs to relax. Buy your favorite name."
Jefferies chief market strategist David Zervos — who is also chief investment officer of the global macro division of Jefferies Investment Advisors — cut Powell some slack:
"First, the inflation side. I think that's really where Jay [Powell] led us before. He didn't lead us very well today on that, and I think that's a little why the market's reacting the way it is. It needed to hear more about this inflation undershoot, the framework change. He punted on that question. He could have done a much better job of saying, 'Hey, we're doing this because we've missed inflation for so long by so much,' and I think people would have gotten the gist of what he was doing. He didn't do it that well. Hopefully, he'll do that well the next time. He did that well in the semi-annual testimony, and I think Josh [Brown]'s point on the '95 comparison is really important. I think [Fed Vice Chairman Richard] Clarida's in this camp, and most everybody else that's cutting here is in the camp that this is not the start of a recession and a major rate-cutting cycle. It's a take-back: 'Maybe we went a little too far.' They never want to admit mistakes, but maybe we went a little too far and we're doing something. … And I think that's an OK thing to say. He probably just could have articulated that a little bit better. But, look, we've learned something from Jay in the last year or so of watching him: He's not the best articulator. He's not the best communicator. He makes some off-the-cuff remarks that don't work out so well sometimes. So, I think the market is also going to give him a break on that, and they did. And we're back to kind of not down that much."
Art Cashin, managing director of UBS Financial Services and director of floor operations for financial services at the New York Stock Exchange, got the pulse of traders on the floor:
"Well, there were a couple of things. First of all, you had two dissents, but they said, 'No cut.' Nobody dissented saying, 'We should cut by 50 basis points,' so that had the markets a little nervous going in. Then, when [Powell] seemed to point out that this was a midcycle cut, it was not the beginning of a series of cuts, people heard that as, 'Oh my gosh, does he mean one and done?' And that's when they took the Dow down 400 points. He walked back from that [at] about 3 o'clock when he said it … wouldn't be necessarily one and done, and that gave the markets a little sense of relaxation. But they're not quite over it yet. They didn't get exactly what they wanted, and that nervousness is still evident in the Dow being down where it is."
Speaking before Powell's news conference, David Kelly, chief global strategist and head of the global markets insights strategy team at J.P. Morgan Asset Management, questioned how much a 25-basis-point rate cut would really do:
"This is not bad. I mean, I think this is about as good as I could have hoped for, but I would still have liked them — and I hope he does this at the press conference — ... to set out some guidelines as to just: low inflation, yeah, we'd like inflation to be higher, but that's not a reason to go to zero. And he needs to say that, because people are going to just price in successive, successive rate cuts, and the key thing that everybody misses here is it doesn't stimulate anything. Because what it does is it pushes up asset prices, which feed money towards richer people who don't spend it. You don't get extra aggregate amounts. You don't get extra inflation. This hasn't worked in Europe, it hasn't worked in Japan, it hasn't worked in the United States, and it won't work going forward. … It doesn't work. And there's lots of negatives of having interest rates in the wrong place, and I don't see much positive."
BNY Mellon chief strategist Alicia Levine said the central bank should have done more:
"They should have [cut by] 50 [basis points] today, and they should have ... for the reasons that we've discussed, which is that you've got the inflation expectation problem and the strong dollar problem. And, … really, the stronger dollar is what's going to blow back to the U.S. economy ultimately and hurt our corporate sector, because the S&P and the corporate sector absorb weakness overseas and the stronger dollar in a way that the overall economy does not. So, you feel it in the corporate sector and you feel it in the markets. … This feels like 1998. It doesn't feel like 2007, meaning that the economy is good enough, we have strength in the labor market and therefore in the consumer sector. Consumer is 70% of the economy, so with the rate-cutting and different expectations on discount rates, yes, you buy equities here. The riskiest parts of assets are going to rally on this. And, yes, there's the risk of the bubble, but here we are."
Jim Caron, head of global macro strategies on Morgan Stanley's global fixed income team, said that, regardless of the Fed, the market is in a "liquidity trap":
"Globally, I don't think we have a problem with inflation. So, moving rates down now [is] just inevitable. You're either going to hit your target when unemployment rates are really low and the equity markets are really high and you cut rates. If you can't hit your target, then you're certainly not going to hit your targets when the economy rolls over at some point. … I think we're in a liquidity trap. I don't think lowering rates necessarily does a lot, ... and I think that ... fiscal stimulus is probably what's actually needed. But, in the meantime, what we're going to see is the [European Central Bank] is going to be very aggressive, I think, in cutting interest rates, and now there's going to be a bigger interest rate differential and the dollar is going to get stronger on balance. That can create more immediate problems that we have to solve, so I think the Fed bringing rates down has to mitigate that. Once the Fed opens the door to lower rates, they have to have a reason to stop cutting those rates, and it could be inflation."
