August 6, 2019


It was 8-years ago (on 8/05/11) that the rating agency S&P downgraded the debt issued by the USA from a top credit rating, a ranking that had been held for 70 years.  Gloom-and-doom predictions that forecasted rising interest rates for US government bonds sent the stock market down 6.6% the next trading day as investors feared the worst was yet to come.  The Wall Street experts however were wrong.  Since 8/05/11, the yield on the US 10-year Treasury note has not gone up but has fallen from 2.57% to 1.85% and the S&P 500 did not collapse but has gained +189% (total return) over the 8 years, equal to +14.2% per year (source: BTN Research).  

The Federal Reserve did exactly what was expected last week, but not as much as had been hoped for.  The Fed lowered its key benchmark interest rate by ¼ of 1%, its first rate cut in 10 ½ years, but less than the ½ of 1% drop desired by stock investors.  Chairman Jerome Powell called the Fed’s action a “mid-cycle adjustment to policy” instead of labeling it as the beginning of a series of rate cuts, leading some market watchers to conclude the drop might be a “one-and-done” reduction.  Additional rate cuts will be driven by the weakness/strength of the global economy and a escalation/resolution of trade tensions with China (source: Federal Reserve).    

The White House, convinced China is not holding up its end of an agreement to buy more grain from US farmers, is now threatening to impose 10% tariffs on almost all remaining Chinese imports (worth $300 billion annually) that are not subject to the 25% tariff previously implemented.  The new tariffs would begin 9/01/19 (source: White House).

Notable Numbers for the Week:

1.     AND THE WORLD DIDN’T COLLAPSE - Today is the 2,000th trading day for the bond market since the USA was downgraded by S&P from a top credit rating on 8/05/11 (source: BTN Research).  

2.     JUST IGNORE IT - The “Bipartisan Budget Act of 2019” was signed into law by President Donald Trump on Friday 8/02/19.  The bill increases our nation’s discretionary spending by $324 billion over the next 2 fiscal years (2020-2021) above the statutory caps agreed to by Congress in December 2011 (source: BBA 2019).   

3.     A LOT IN A FEW - Of the 532 bank failures that have occurred in the USA during the 15 years ending 7/31/19, 51% (270 failures) have taken place in just 4 states – Georgia, Florida, Illinois and California (source: FDIC). 

4.     GROWING POPULATIONS - From 1970 to 2019, San Jose has gone from the # 31 largest US city to # 10, and Phoenix has gone from # 20 to # 5 (source: Census Bureau). 

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