Stocks opened modestly higher this morning (Dow +27 pts; SPX +.12%). Most market sectors are higher in early trading, led by energy, tech and real estate. Consumer staples & discretionary sectors, however, are in the red. Earnings announcements continue to push around individual stocks, but the market as a whole is waiting on the outcome of today’s Federal Reserve policy meeting for some direction. The bond market is moving higher this morning, with rates dipping. The 10-year Treasury yield is back down to 2.03%. Junk bonds are also in green, perhaps because traders expect the Fed to formalize the flip to monetary easing today (see below).

The near unanimous opinion among investors is that the Fed will agree to a .25% interest rate cut, mostly as insurance against the possibility of continued economic sluggishness. Not that a rate cut is necessary right now in order to stave off the next recession, but it would convince everyone that the Fed is fully committed to extending the cycle. In addition, a rate cut would send a strong signal that the Fed isn’t just paying attention to its twin mandates of full employment and inflation, but is sensitive to a host of other risks to investors, including the trade war and Brexit. A rate cut today would complete the Fed’s 180-degree monetary policy turn from tightening, to neutral, to easing in less than one year. Lower rates are, of course, mostly thought of as stimulative to the economy because they make all kinds of loans (i.e. mortgages) cheaper. In addition, lower rates normally help stocks move higher. On the other hand, usually when the Fed begins cutting interest rates, recession is around the corner. Investors will key in on the statement issued at the close of the meeting to assess the Fed’s outlook for the economy.

It’s no secret that economic data have been improving and corporate earnings announcements are fairly healthy. So this complicates the Fed’s decision. Unemployment, consumer spending and GDP recently surprised to the upside. Payroll processor ADP estimates that the US economy generated 156,000 new private sector jobs this month, roughly in line with expectations. After a brief dip in the spring, job growth has rebounded.

Apple Inc. (AAPL) reassured investors with its second quarter earnings announcement yesterday. Revenue growth slowed to just 1% and earnings-per-share fell 5% from year-ago levels, but Wall Street expected worse. Slowing growth can be blamed on iPhone sales, which fell 12%. But there were reasons for optimism. The services business—which has a very high 61% profit margin—posted revenue growth of 13%. Wearables revenue shot up over 50%. And sales within Greater China fell only 4%, which is must better than expected. The stock is up 4% this morning.

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