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Providence and America

How Many Recessions Has The Fed Failed To Prevent?

The opinions expressed by columnists are their own and do not necessarily represent the views of
AP Photo/Pablo Martinez Monsivais

Yesterday was a good session, but it wasn’t great for several reasons:

  • Couldn’t take out key resistance points
  • The overall volume was thin, and while the market breadth was good, there was still a fair amount of losing issues


  • Advancers: 2,096
  • Decliners: 850
  • New highs: 176
  • New lows: 40
  • Up volume: 2.15 billion
  • Down volume: 878 million


  • Advancers: 2,125
  • Decliners: 995
  • New highs: 76
  • New lows: 61
  • Up volume: 1.16 billion
  • Down volume: 547 million

However, leadership was intriguing, pointing to the right one-two punch with Consumer Discretionary names representing household strength and confidence. While Technology underscores the fact that business investments have shifted big time from big factors to big efficiencies, it’s keeping Technology stocks hot even when the Horsemen associated with tech struggle. 

S&P 500 Index


Communication Services (XLC)


Consumer Discretionary (XLY)


Consumer Staples (XLP)


Energy (XLE)


Financials (XLF)


Health Care (XLV)


Industrials (XLI)


Materials (XLB)


Real Estate (XLRE)


Technology (XLK)


Utilities (XLU)


Not only was yesterday’s session a reminder of the strength of the American consumer and nimbleness in American businesses, but the rally also survived another brief yield inversion between the two-year and ten-year Treasury bonds. The Dow Jones Industrial Average slipped 60 points off the session’s high, but that’s a lot better than the 800 points lost last week.

There was just too much real-time information and other news overshadowing recession fears.

By the way, the last time there was an inversion was August 2005, and a full 28 months later, a recession began. I wish I could have 28 months for any of my predictions to come true. My new nickname would be Nostradamus. Its good investors didn’t panic as they did with the knee-jerk reaction one week earlier.


The yields widened into the close:

  • 10- year: 1.587
  • 2- year: 1.569

I’m not sure to what degree the Federal Open Market Committee (FOMC) minutes played with the move in yields. What we mostly learned is the Federal Reserve is really torn, as two voting members voted against a rate cut and two other members voted for a 50-basis point cut. The last time I saw so many experts this torn was the controversy surrounding the Don King boxing card.

There have been 47 recessions in our history. Although the Fed was birthed (or created) during the Recession of 1913, its promise to smooth out the boom and bust of business cycles has largely failed.

After the close, a couple of key earnings releases sent shares higher:

  • Nordstrom’s (JWN) missed on revenue but beat by $0.13. I’m still confused about why the stock rocketed higher in after-hours trading
  • Splunk (SPLK) rocked and shot higher, and then began to wane

CBO Mix Message

Lost in all the market and Fed noise yesterday was an update on the budget and America’s economic outlook. The report from the Congressional Budget Office (CBO) provided more relief for those still worried about a near-term recession but added grief for those worried about massive deficits and towering debt.

Key Takeaways

  • Lower interest rates
  • Higher deficits
  • Higher debt levels
  • Stronger growth than the previous modeling
  • No Recessions

Director’s Statement on An Update to the Budget and Economic Outlook: 2019 to 2029

Deficits are now expected to be larger than previously projected, primarily because recently enacted legislation raised caps on discretionary appropriations for fiscal years 2020 and 2021. Partly offsetting the budgetary effects of new legislation are revisions to our economic forecast, which pushed down deficit projections.


In particular, we reduced our projections of interest rates, which in turn lowered our projections of borrowing costs. We also raised our projections of economic growth in the near term.

CBO’s Budget Projections

As a result of those deficits, federal debt held by the public is projected to grow steadily, from 79 percent of GDP in 2019 to 95 percent in 2029—its highest level since just after World War II.

Primary deficits—that is, deficits excluding net outlays for interest—are now projected to be a total of $1.9 trillion greater over the 10-year period than they were projected to be in May.

  • First, an increase of $1.7 trillion resulted from the enactment of the Bipartisan Budget Act of 2019
  • Second, supplemental appropriations for disaster relief and border security for 2019—which CBO also assumed will grow with inflation in future years, in accordance with laws governing baseline projections—added $255 billion.
  • Offsetting those increases was a third change: Downward revisions to our forecast of interest rates reduced our projections of interest costs, and thus our projections of deficits, by a total of $1.4 trillion.

CBO’s Economic Projections

In CBO’s projections, from 2019 to 2023, economic growth gradually slows as the growth of consumer spending subsides; as growth in purchases by federal, state, and local government’s ebbs; and as trade policies weigh on economic activity, particularly business investment. Higher trade barriers—in particular, increases in tariffs—implemented by the United States and other countries since January 2018 are expected to make U.S. GDP about 0.3 percent smaller than it would have been otherwise by 2020.


Over the 2020–2023 period, economic growth averages 1.8 percent, as real output returns to its historical relationship with potential output. That projected growth rate is faster than what we projected in January—partly because of the increased projections of discretionary spending resulting from the Bipartisan Budget Act of 2019.

From 2024 to 2029, projected growth (which is largely determined by underlying trends in the size of the labor force and productivity) is similar to what CBO has projected for the 2020–2023 period.


We added a new position to the model portfolio yesterday. For a full update, contact your rep or  We are raising Industrial to a 3 and lowering Cash to 15%.

Communication Services

Consumer Discretionary

Consumer Staples












Real Estate











Today's session

The strong labor market continues to defy recession fears. Initial jobless claims fell by 12,000 to a seasonally adjusted 209,000. The 4-week moving average was 214,500, an increase of 500 from previous week's revised average. The previous week's average was revised up by 250 from 213,750 to 214,000.

ECB Ready to make it Rain

ECB Eyes Stimulus Package As Growth Looks Weaker: Minutes

European Central Bank policymakers are concerned that growth is even weaker than earlier thought and a package of measures may be the best way to combat the slowdown, the accounts of the July 25 meeting showed on Thursday.

With growth and inflation slowing for months, ECB President Mario Draghi has all but promised more stimulus as soon as September and a steady flow of dismal data since the meeting has only reinforced the case for more support.


The accounts of the meeting showed options on the table for the ECB include a combination of a rate cuts, asset purchases and changes in the guidance on interest rates.

The bank could also offer more support for the bank sector, which transmit easy policy to the real economy through a relief from the ECB's negative interest rate.

"The view was expressed that the various options should be seen as a package, i.e. a combination of instruments with significant complementarities and synergies," the ECB said.

"Experience has showed that a package - such as the combination of rate cuts and asset purchases - was more effective than a sequence of selective actions," it added said.


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