Fed Forward Guidance, Earnings Estimates, Government Shutdowns

The Federal Open Market Committee (FOMC) left short-term interest rates unchanged, but their forward guidance spooked the markets. The committee also updated their economic projections to reflect the continued strength in the economy. The U.S. equity markets remain bifurcated between the largest companies and everyone else. Earnings estimates for next year are rising. Chinese investment and spending. Government shutdowns.

1. It’s worth noting that the FOMC’s forward guidance hasn’t been very consistent. This inconsistency has, so far, only cut one way but the committee may be wrong in the other direction at some point:

Source: @TheTerminal, Bloomberg Finance L.P.

2. The 10-Year Treasury Yield tends to peak after the last rate hike. The FOMC left room for one more rate hike in their guidance but indicated that their future moves will be data dependent:

Source: Deutsche Bank Research  

3. Liz Young, the Head of Investment Strategy at Sofi, wrote a more detailed analysis of the Fed’s September statement here:

Source: SoFi, Federal Reserve Board via the Daily Chartbook #285

4. Analysis form Oxford Economics indicates that the full impact of tighter monetary policy haven’t been felt yet:

Source: Oxford Economics  

5. The forward price to earnings (PE) ratio for the median U.S. stock is much lower than that of the largest seven stocks:

Source: Savita Subramanian – BofA via the Daily Chartbook #285

6. Economic optimism is working its way into earnings estimates:

Source: BofA via the Daily Chartbook #285

7. The Chinese government’s recent policy changes have focused on ease of investment, but the economy is suffering from a lack of confidence and low consumer spending:

Source: BCA Research  

8. Historically, government shutdowns have had a limited impact on the equity markets:

Source: @ryandetrick via @isabelnet_sa via the Chartbook #285