The Dow Slipped 19 Points Because the Fed Could Play Trick or Treat

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All three major stock indexes closed with minor losses on Tuesday, one day after the S&P 500 set a record close. The Federal Reserve will update monetary policy at the conclusion of its October meeting tomorrow, but it could be littered with jargon.

The Dow Slipped 19 Points Because the Fed Could Play Trick or Treat

All three major stock indexes closed with minor losses on Tuesday, one day after the S&P 500 set a record close. The Federal Reserve will update monetary policy at the conclusion of its October meeting tomorrow, but it could be littered with jargon.

https://www.marketwatch.com/story/trump-celebrates-sp-500-record-as-he-says-china-deal-ahead-of-schedule-2019-10-28?mod=hp_BRIEF&mod=article_inline https://www.barrons.com/articles/fed-next-rate-cut-51572312882 https://www.barrons.com/articles/alphabets-google-earnings-fell-short-miss-equity-holdings-51572295846?mod=article_inline https://www.barrons.com/articles/merck-pfizer-stocks-earnings-medicare-for-all-big-pharma-51572358235?mod=hp_DAY_11 https://www.marketwatch.com/story/trump-celebrates-sp-500-record-as-he-says-china-deal-ahead-of-schedule-2019-10-28?mod=hp_BRIEF&mod=article_inline https://www.wsj.com/articles/businesses-fear-u-s-china-wont-reach-deal-on-core-issues-11571995803 https://www.barrons.com/articles/fed-next-rate-cut-51572312882?mod=hp_LEAD_2 https://asset.barrons.com/dj-mg/dice/barrons-staffpicks-2d590600-c862-4394-b9d3-66b48c376d60/inset.json https://www.marketwatch.com/story/consumer-confidence-stabilizes-in-october-as-china-trade-tensions-ease-stocks-surge-2019-10-29 https://www.marketwatch.com/story/slumping-us-manufacturers-experience-worse-month-since-end-of-great-recession-ism-finds-2019-10-01 mailto:evie.liu@barrons.com The Dow Slipped 19 Points Because the Fed Could Play Trick or Treat By Evie Liu Illustration by Michael George Haddad

Chugging Along. All three major stock indexes closed with minor losses on Tuesday, one day after the S&P 500 set a record close. President Donald Trump reported progress toward a partial trade deal. The Federal Reserve will update monetary policy at the conclusion of its October meeting tomorrow, but it could be littered with jargon. Investors are also watching stocks move sharply after their September-quarter earnings report. Alphabet (ticker: GOOGL) and Grubhub stock (GRUB) tumbled after missing Wall Street expectations, while drug giants Merck (MRK) and Pfizer (PFE) saw their shares rise after releasing better-than-expected results. In today’s After the Bell, we...

continue to follow trade-talk developments between the U.S. and China; wonder what would happen after three consecutive 25-basis-point cuts from the Fed; and check on the latest consumer confidence data in October.

Post-Record Day

Stocks were largely flat on Tuesday, but the Nasdaq Composite was dragged down by the drop in shares of Google parent Alphabet. The Dow Jones Industrial Average edged down 19.26 points, or 0.07%, to close at 27,071.46. The S&P 500 slipped 2.53 points, or 0.08%, to finish at 3036.89, while the Nasdaq Composite lost 49.13 points, or 0.59%, to close at 8276.85.

President Trump told reporters on Tuesday that negotiations with China regarding the “phase one” trade deal are moving “ahead of schedule” and the two sides will sign a “very big portion” of the deal. Trump is scheduled to meet with Chinese President Xi Jinping at the Asia Pacific Economic Cooperation summit in Chile next month, where the trade deal is expected to be signed.

The Federal Reserve’s October meeting is underway and investors are waiting for the central bank to update its monetary policy after the meeting concludes on Wednesday. Bond-market participants are widely expecting another 25-basis-points cut in interest rates, which would be the third cut this year after nine consecutive hikes.

https://asset.barrons.com/dj-mg/dice/barrons-staffpicks-2d590600-c862-4394-b9d3-66b48c376d60/inset.json

As of the path beyond October, LPL Financial strategist Ryan Detrick thinks there will be only one more rate cut this year, and doesn’t expect the Fed to take its policy rate from the current range of 1.75%-2% to below 1.5%, even in 2020. “It is important to note that the Fed started new cycles of rate cuts in 2001 and 2007 with 50 basis-points cuts, implying they were more worried than they were letting on. Seeing that this cycle has had cuts of only 25 basis points so far, the cuts are being viewed more as ‘insurance’ rather than warding off an impending recession,” wrote Detrick on Tuesday.

The last few times when market saw three consecutive 25-basis-point cuts was in 1975, 1996, and 1998, noted Detrick, and the economy recovered from the slowdown and accelerated soon after the three cuts. Stocks did quite well, too, with the S&P 500 index up more than 10% only six months later, and up 20% a year later.

As trade tensions with China de-escalated as of late and stocks rebounded to record highs, Americans remained fairly optimistic in October. The Conference Board’s consumer confidence index edged down 0.4 points from the previous month to reach 125.9 in October. Although that’s lower than expected and marks the third-straight month of declines, the absolute level is still in the higher historical range.

While investors remain pretty positive about the economy’s present situation—with the index rising to 172.3 from 170.6 last month—their outlook for the following six months dimmed, declining to 94.9 from the previous 96.8, which reflects concerns about a potential recession and market drawdowns in 2020.

Still, the latest report said there is no indications that consumers will curtail their holiday spending this year. A resilient consumer sector has been the main supporter for the current business expansion, as manufacturing has seen meaningful weakness this year.

Write to Evie Liu at evie.liu@barrons.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.