September 2024
Great thoughts reduced to practice become great acts.
-William Hazlitt
September’s Federal Reserve Board meeting brought the first rate cut that the market had been breathlessly anticipating since the start of 2024. The parlor game of the 25 bps or 50 bps for the first cut ended, with a 50 bps decline in the Fed Funds rate to a range of 4.75-5.00%. As we have observed during Powell’s tenure, his press conferences tend to bring a substantial amount of volatility to markets from 2-4pm EST when he speaks. Major averages often move around in a figure-8 as investors and all manner of natural language processing algorithms seek to parse each word and members of the press do their best to worm more information out during the question and answer period. And the next day can bring an entirely different reaction as we saw on the surge higher on 9/19 and a sobering up on 9/20.
As we have talked about before in our investor letters, Fed press conferences are a relatively new phenomenon, started by Ben Bernanke, continued by Janet Yellen and now Jerome Powell. The famed maestro Alan Greenspan kept a lower profile and did his best to say as little as possible (in as many words as possible) in semi-annual Humphrey-Hawkins testimony. The house view at HVP is that these press conferences offer little value to investors. Traders enjoy them, but for those with a longer view it is often minutia worth skipping.
The press conferences have taken on greater significance for some in the Powell era as opposed to Yellen or Bernanke due to the Powell Fed’s reliance upon “data dependency” rather than a certain philosophy or school of thought such as that which shaped the thinking of Bernanke, a scholar of the Great Depression, or Yellen, a labor economist. Indeed, data dependency is inherently backward looking. The two phrases can often be substituted in a sentence without changing its meaning. Such data dependency and an absence of readily discernable guiding principles turn the press and rates junkies into acolytes trying to do their best exegesis. Buried in the weeds (let alone the trees) the forest is often missed.
And it is the larger picture view that we would like to dwell on for a few moments in this month’s HVP Risk Dashboard. The US election is in the home stretch. Companies and households with variable rate debt will benefit from lower interest rates. Federal budget deficits are not just a US problem, but a global one. It is hard to see the long term direction of tax rates being anything but higher to pay for current spending and additional social assistance as the world population ages. Innovation remains brisk not only in technology and healthcare, but in applying new tools to old industries too. For every reason to get scared out of the market, there is a good reason to stay in carefully selected companies. That distinction, we believe is the mindset shift that unlocks the next level of investing. It can be a lot easier to hold a stake in a business rather than a stock that you treat like a trading card. When you think about your portfolio, think about the companies themselves - it is a lot more tangible and we think there is a little more rationality in owning a great franchise business for the long haul than worrying about oft revised headline numbers.
The rate cut and swings in broad markets reconfigured a few charts this past week which is why we held off on putting together September’s edition. We hope you enjoy it!
We look forward to writing to our investment and wealth management clients in our autumn letters, due out in October.
Keep reading with a 7-day free trial
Subscribe to HVP Risk Dashboard to keep reading this post and get 7 days of free access to the full post archives.