No surprises here for us. No interest rate increase (as expected).
"The Committee judges that the case for an increase in the federal funds rate has strengthened but decided for the time being, to wait for further evidence of continued progress toward its objectives."
Then they issued a revised economic outlook for growth to 1.8% from 2%.
So I ask you my friends, what am I missing?
A lower economic outlook is not a strengthening case for raising interest rates.
Consumers are not spending and businesses are not investing because they lack confidence in the future. Confidence does not come from interest rate moves or quantitative easing, it comes from believing that incomes and earnings will grow in the future.
As I have often said on this blog and in our weekly client webinars, there is just far too much uncertainty at the moment and until that gets sorted out, economic growth of any significance is not going to happen.
Brexit, Trump, Terrorism, North Korea, Syria, Russia (and others that I have missed): nationalism, populism and push-backs against globalization continue to threaten the global economy.
Enormous global debt levels and inflated asset prices because of low interest rates are weakening the structure of the global economy and there is, at the moment, little ammunition left for central banks to stimulate growth and have room to act if there is another economic or geo-poilitical shock.
An economy growing at 1.8% does not suggest the equity market analyst projections of 13% earnings growth for 2017 are anywhere close to being realistic.
So it is hard to believe that the stock markets should be up 6% in 2016 whether you are looking forward or backward (2016 earnings growth is projected to be flat: -.2%)
Analysts projected 6% earnings growth for 2016 at the beginning of the year and consistently revised these down over the course of the year.
This economic cycle which began back in 2009, is now over 7 years old and is sending signals that it doesn't have much left in the tank. The coming recession, which will happen eventually, will likely not be as steep and deep as the last one, but it will happen and the sooner it does, the sooner the excesses will get shaken out and then we can get back to some better growth potential for the future.
Historically, stock markets do not perform well in recessions, so we remain defensive and caution others to follow suit.
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Scott Tomenson,CIM Managing Partner, Chief Investment Strategist