Not a pretty picture

 Another day, another record for the US stock market after the Federal Reserve duly delivered its 25 basis point cut in interest rates, as we also received two different reports that, on the face of it, offer contrasting views on the current state of the US economy. One released by the Federal Reserve Bank of Philadelphia on Thursday indicated that regional manufacturing activity expanded overall in September. In summary, the survey’s broad indicators for future activity suggest that firms continue to expect growth over the next six months. In contrast, the latest Conference Board Leading Economic Index fell by 0.5% to 98.4 in August, amid growing concerns about the labour market. The report concluded, “In August, the US LEI registered its largest monthly decline since April 2025, signalling more headwinds ahead.” Results of surveys often come down to who you ask and how you ask.

 Back to the rate decision, all but one member voted for 25 basis points; Mr Miran, the most recent member parachuted in by President Trump, voted for 50 basis points. The consensus view is that the Fed could go for two more cuts before the year’s end, but by Wednesday evening, stocks and two-year bond yields ended barely changed, while the dollar and the 10-year yield rose slightly, exhibiting what may be described as classic signs of a “hawkish cut.” Jerome Powell, in his post-announcement press conference, focused the committee more on the employment aspect of the mandate than on inflation.

Now back to the UK, where the Bank of England voted 7-2 not to change interest rates, suggesting that unless something changes drastically in the next month, rates are unlikely to move lower soon. The Bank of England is caught between a rock and a hard place regarding interest rates, as rising prices and limited economic growth persist. This morning’s retail sales data was in line with expectations; however, it was notable that yesterday, two UK retailers, Pets at Home and Next, reported weak results, which may provide better insight into consumer health. In a blunt assessment of the UK economy, Lord Wolfson, the Next CEO, while delivering the results, expressed his view that economic expansion is being hindered by “declining job opportunities, new regulation that erodes competitiveness, government spending commitments that are beyond its means, and a rising tax burden that undermines national productivity.” On another note, Public sector net borrowing was £18 billion in August, the highest in five years, and significantly above the £12.8bn forecast. If this government does not find a way to cut spending, the market will force them to do so. Why is Reeves waiting until November to deliver her budget?

One footnote on stock market investing, after many years of observing, working, and investing in the stock market. Two of our best investment decisions over the years have been buying stocks where the analyst community has been universally negative, with not a single buy-rated recommendation. I am going to develop a new investment screen for those stocks that are universally disliked by the investment community.