Connect with us

Business

The Fed Isn’t Rushing to Save the Markets This Time

Published

on

The Fed Isn’t Rushing to Save the Markets This Time

The notion that the Federal Reserve will rush in to rescue investors in a crisis has comforted investors for decades. But in the big market downturn induced by President Trump’s tariffs, no Fed rescue is in sight.

Jerome H. Powell, the Federal Reserve chair, made that clear on Friday. The tariffs are much “larger than expected,” he said, and their immense scale makes it especially important for the central bank to understand their economic effects before taking action.

“It is too soon to say what will be the appropriate path for monetary policy,” he said at a conference in Virginia.

In fact, I’d say, the likelihood of further market declines is much greater than the chance that the Fed will turn the markets around in the immediate future.

What U.S. stock investors have experienced until now is what’s known on Wall Street as a correction — a decline of 10 percent or more from a market peak. The correction doesn’t end, by this common definition, until the markets have turned around and that peak has been surpassed. For days, though, the market momentum has been almost entirely downward. So another dubious distinction is in sight: a bear market, which is a decline of at least 20 percent from a market top. For the S&P 500, which closed at 5,074.08 on Friday, down from its peak of 6,144.15 on Feb. 19, a bear market is already within shouting distance, a scant 2.6 percentage points away.

Advertisement

It would be lovely to be able to say that the stock market bottom is near, or that it has already been reached, Edward Yardeni, a veteran market watcher, said in a conversation on Friday.

“I’ve been pretty good at picking market bottoms, and I’m not shy about calling one when I see one,” he said. “But that usually has happened when the Fed has taken action. And right now, its pretty clear that Powell won’t be doing that.”

The Fed is holding back this time for good reasons. The impact of the sudden new range of tariffs imposed by the president — and the tit-for-tat tariffs announced on Friday by China that are likely to be followed by similar moves from a host of other countries — is far from clear.

But this much is certain. Tariffs are a tax, one that is likely to slow economic growth as well as raise prices. Those effects complicate the task of the Fed, which has a dual mandate: promoting full employment (and economic growth) and holding the rate of inflation down to a reasonable level.

With the Fed still battling inflation after the runaway surge in prices of 2022 and 2023, it is reluctant to lower interest rates when price increases in a range of goods could be just around the corner. And on Friday, the latest jobs report from the government showed that the economy in March remained reasonably strong. Employers added 228,000 jobs for the month, far more than anticipated, and while the unemployment rate rose slightly, to 4.2 percent from 4.1 percent, there were few signs of substantial weakness.

Advertisement

Given that backdrop, Mr. Powell seemed to be signaling that it would take an actual slowdown, with substantial job declines, to justify rate cuts under current circumstances. Consumer confidence has declined, and an Economic Policy Uncertainty Index that is closely watched by economists and business executives has soared. But concrete data isn’t here yet. If they’re not rolled back, the tariffs are likely to take a while to result in widespread layoffs — and without strong evidence of a slowdown, the Fed may be reluctant to act.

Yet the Fed has already come under pressure from President Trump to lower interest rates. This is the “PERFECT time” for a Fed rate cut, he said on the Truth Social media platform on Friday, shortly before Mr. Powell’s speech. Maintaining Fed independence is important in the markets, and there was no indication that this overt presidential pressure had any effect on Mr. Powell’s staunch resolve to bide his time, and to lower interest rates only when and if the Fed decided it was time to do so.

So investors may need to be very patient, and to hope that changes in tariff policy occur rapidly enough in Washington to turn the markets around and, more important, avert a recession. Recessions are typically associated with wide-ranging job losses, and they cause immense hardship in the real world as well as in financial markets.

Recessions usually make bear markets much worse, Ned Davis Research, an independent financial research firm, has found. Bear markets accompanied by recessions had a median duration of 528 calendar days and a market decline of 32.8 percent, the firm has found, using Dow Jones industrial average data since 1900. Bear markets that occurred without recessions had a median duration of 224 days and a decline of 23.3 percent.

“Bear markets are unfortunate whenever they occur, but they tend to be much worse if there’s also a recession,” Ed Clissold, chief U.S. strategist at Ned Davis Research, said in an interview.

Advertisement

Yet the Trump tariffs, which would be the steepest in a century if fully carried out, have already set off a global trade war. The president could reverse himself, remove most of the tariffs and try to undo some of the damage, but there are no signs that he’s planning to do so. In the meantime, the chances of a recession and of further market declines have been growing.

Mr. Yardeni said that while he remained optimistic about the long-term prospects for the United States, fear, confusion and uncertainty over President Trump’s tariff policy make him less positive about the next year. The chances of “stagflation” — a dreaded combination of high inflation and a slowing economy — are now 45 percent in the next 12 months, up from 35 percent one month ago, he said, and that wouldn’t help the stock market.

Goldman Sachs says there’s now a 35 percent chance of a recession in the next year, and late in March it ratcheted down its estimate for the S&P 500, projecting a 5 percent price decline over the next three months. At the start of the year, Goldman was rampantly bullish, forecasting a 16 percent increase in the S&P 500 over the course of 2025. If the market falls much further, Goldman and other market strategists are likely to revise their estimates still lower. JPMorgan has already raised the odds of a global recession this year to 60 percent.

As I’ve pointed out in recent columns, though, bonds have been performing well this year, easing some of the pain for investors, and international stock markets have done better than the U.S. ones, although they, too, have been battered as the reality of a new world of higher tariffs has sunk in. Old-fashioned low-cost diversified investing — I practice it using index funds that track virtually all tradable global markets — has eased some of the pain this year.

But in a full-blown recession and a bear market, few people will be entirely spared. Eventually, markets rebound, and those with long horizons are likely to prosper, regardless of what happens in the next few weeks.

Advertisement

Some market declines are blessedly brief. But in the bear market that started in October 2007, during the great recession of that period, it took more than four years, including dividends, for investors in the S&P 500 to climb back to the peak of their holdings in that index.

Even so, it was worth hanging on, for those who were able to do so.

Since the 2007 market peak, the S&P 500 has had a total return of more than 356 percent, even including the latest market declines. Staying in the market has paid off over the long run, and it’s likely to do so again. But sticking with it, even in times like these, can be tough. You need strength and plenty of patience to be a long-term investor.

Continue Reading
Advertisement
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Business

Porto's Bakery moving forward in Downtown Disney, replacing Earl of Sandwich

Published

on

Porto's Bakery moving forward in Downtown Disney, replacing Earl of Sandwich

The long-awaited Porto’s Bakery & Cafe is one step closer to serving up its pastries, cakes and famed potato balls for visitors heading to the “Happiest Place on Earth.”

Disney filed demolition permits this month for the building that previously housed La Brea Bakery in Downtown Disney just steps away from the entrance to Disney California Adventure and Disneyland. The site, which currently houses Earl of Sandwich, will be the future home of the seventh Porto’s Bakery location in Southern California.

The location gets huge foot traffic. In 2023, at least 27 million visitors streamed through the shopping district known as Downtown Disney to enter Disneyland and Disney California Adventure, according to an annual report by the consulting firm Aecom and the Themed Entertainment Assn.

Porto’s Bakery, which started in a small space in a Silver Lake strip mall in 1976 as an extension of founder Rosa Porto’s business in Cuba, has been a beloved institution in Los Angeles for decades. Lines at the bakery’s six locations frequently snake out the doors on weekends and its yellow boxes stuffed with pastries often make appearances on flights out of Los Angeles.

Advertisement

Hundreds of fans swarmed Buena Park when the Cuban bakery opened its first Orange County location in 2017.

The permit filed with the Anaheim Planning and Building Department calls for tearing down the 2,610-square-foot bakery and restaurant and removing two theme park ticket booths. The utilities will be capped and the foundations removed on each site, according to city records.

It is not clear when the Porto’s Bakery location in Anaheim will open its doors. Disney officials and Porto’s representatives did not immediately return emails seeking comment.

The announcement of a spot in Downtown Disney in 2022 generated much excitement. La Brea Bakery shuttered the following year to make way for the beloved Los Angeles institution, but construction didn’t immediately start.

The delay prompted rumors that Porto’s had abandoned the plan for the site, but the bakery put people’s minds at ease last year with an announcement that it would be arriving at the outdoor shopping mall in 2025.

Advertisement
Continue Reading

Business

Commentary: Need a balm for these troubled times? I recommend the works of P.G. Wodehouse

Published

on

Commentary: Need a balm for these troubled times? I recommend the works of P.G. Wodehouse

Seeking succor when the world seems to be closing in on you is a quintessentially human habit. Some people do it by gorging on comfort food like macaroni and cheese, others choose drink, or drugs, or gardening, or the warmth of a puppy.

I always know when I’m feeling blue, because I feel the gravitational pull of my long shelf of P.G. Wodehouse books.

If you’ve never read Wodehouse, I envy you the pleasure of discovering him for the first time. I’m well past that point; some of his stories and novels I’ve read dozens, even hundreds of times, and they can still make me convulse in laughter. More so when the outside world provides little to laugh about.

Evelyn Waugh, who admitted to learning a hell of a lot from Wodehouse, may have put it best: “Mr. Wodehouse’s idyllic world can never stale,” he wrote in a 1961 essay designed in part to defend Wodehouse over the one blot on his life story (more on that in a bit). “He will continue to release future generations from captivity that may be more irksome than our own. He has made a world for us to live in and delight in.”

And what is that world? It’s timeless, and yet dated. Orwell narrowed it down to the Edwardian era — 1901 to 1919 — long before the irruptions of two world wars and the Great Depression. Its inhabitants are those of “there will always be an England” England: stern vicars, timid curates, lords and earls, penniless titled wastrels living on allowances from their uncles, imperious aunts, upper-crust twits.

Advertisement

They’re all presented on the page by an inspired farceur whose exquisitely penned prose seems effortless, but belies the painstaking craftsmanship needed to make his split-second timing come off.

Some Wodehouse lines are like time bombs, detonating with a momentary delay. My favorite comes in an exchange with the soupy Madeline Bassett in “The Code of the Woosters,” when Bertie comes up with a quote he heard from Jeeves, actually the title of a poem by Percy Bysshe Shelley, to describe his friend Gussie Fink-Nottle as “a sensitive plant.”

“Exactly,” Madeline replies. “You know your Shelley, Bertie.”

“Oh, am I?”

Where to start with Wodehouse? He used several framing devices for his novels and short stories. The golf stories are narrated by the “oldest member” of an upper-class golf club who buttonholes unwary younger members to regale them with his memories of golfers he has known.

Advertisement

The peak of this series, to me, is “Farewell to Legs,” featuring a playboy who takes a house in a placid golfing community and discomposes its dour Scottish golfers with his high jinks: “Angus became aware with a sinking heart that here, as he had already begun to suspect, was a life-and-soul-of-the-party man, a perfect scream, and an absolutely priceless fellow who simply makes you die with the things he says.”

Then there are the fish stories told by Mr. Mulliner at his local pub the Angler’s Rest, involving his inexhaustible circle of relatives. To me, the glory of the Mulliner stories are a sequence of three stories — “Mulliner’s Buck-U-Uppo,” “The Bishop’s Move” and “Gala Night,” all related to his brother Wilfred’s invention of a tonic meant to “provide Indian Rajahs with a specific which would encourage their elephants to face a tiger of the jungle with a jaunty sang-froid,” and what happens when unsuspecting users swallow a tumblerful of something that should be taken by the teaspoon.

Some are set in New York and Hollywood, where Wodehouse spent some time writing lyrics for musicals with Jerome Kern and others. (His best-known song is probably “Bill,” from “Show Boat.”)

But at the summit of Wodehouse’s genius are the stories of Bertie Wooster and his “gentleman’s personal gentleman,” or valet, Jeeves. Of the short stories, all narrated by Bertie, to my mind the greatest are a trilogy beginning with “The Great Sermon Handicap,” continuing with “The Purity of the Turf,” and concluding with what may be the single funniest short story ever penned in English, “The Metropolitan Touch.”

Bertie and Jeeves, as the British essayist Alexander Cockburn once asserted, are a pairing as momentous in literary history as Don Quixote and Sancho Panza, or Sherlock Holmes and Dr. Watson. Wodehouse never exhausted the counterpoint between Bertie’s slangy gibbering and half-remembered literary allusions with Jeeves’ carefully modulated responses: “Very well, Jeeves, you agree with me that the situation is a lulu?” “Certainly a somewhat sharp crisis in your affairs would appear to have been precipitated, sir.”

Advertisement

Bertie is both a classic unreliable narrator and a stock comic character given life. Having inherited a fortune from parents who are almost never mentioned, he’s rich enough for financial difficulties to never be a plot obstruction, though he’s always willing to tide over a pal brought low by “unfortunate speculations” at the racecourse. Jeeves is a deus ex machina; we learn almost nothing about him, except for imperturbability and skill at solving the crises that Bertie falls into through his pure cloth-headedness.

Bertie’s romantic relations are entirely sexless, 20th-century echoes of courtly love, though throughout the oeuvre he gets engaged to at least six women by my count. Among them towers the frighteningly domineering Honoria Glossop. (“Honoria, you see, is one of those robust, dynamic girls with the muscles of a welter-weight and a laugh like a squadron of cavalry charging over a tin bridge.”)

Jeeves extricates Bertie from every one of these entanglements, and thankfully so, because every fiancée begins their relationship with the determination to toss Jeeves out on his ear.

Wodehouse aficionados wage a never-ending debate over which Jeeves and Wooster book is his masterpiece, with “The Code of the Woosters” (1938) and “Joy in the Morning” (1946) typically trading the top two spots.

I’m partial to the former, in part because it features the only overtly political character Wodehouse ever devised. He’s Roderick Spode, a would-be British dictator plainly based on the real-life British fascist and Hitler partisan Oswald Mosley.

Advertisement

Spode is the leader of a gang of fascist toughs known as the Black Shorts. “You mean ‘shorts,’ don’t you?” Bertie says when he first hears about Spode. “No,” he’s told, “by the time Spode formed his association, there were no shirts left. He and his adherents wear black shorts.” “Footer bags, you mean?” Bertie asks, a Britishism for football shorts. “How perfectly foul.”

Spode throws his weight around Brinkley Court, the country estate where the story takes place, harrying Bertie endlessly for reasons we don’t need to go into, until Jeeves provides Bertie with a magic word guaranteed to turn dictator Spode into a shrinking mouse. At the climax, Bertie presses his advantage, informing his nemesis:

“The trouble with you, Spode, is that just because you have succeeded in inducing a handful of half-wits to disfigure the London scene by going about in black shorts, you think you’re someone. You hear them shouting ‘Heil, Spode,’ and you imagine it is the Voice of the People. That is where you make your bloomer. What the Voice of the People is saying is: ‘Look at that frightful ass Spode swanking about in footer bags. Did you ever in your puff see such a perfect perisher?’”

It’s no spoiler to tell you that the magic word Jeeves provides to Bertie is “Eulalie.” As for who or what Eulalie is, and why it reduces Spode to jelly, you’ll have to read the book.

That brings us to that one blot on Wodehouse’s life. When World War II broke out, he was living peaceably in the French resort of Le Touquet. When the Nazis came through in 1940 they interned Wodehouse and transported him to Berlin, from which the Germans persuaded him to make a handful of “nonpolitical” radio broadcasts for his British compatriots.

Advertisement

There was an uproar at home. Newspaper columnists condemned Wodehouse as a “Quisling,” libraries took his books off their shelves, there were condemnatory speeches in Parliament.

The truth is that the broadcasts were indeed nonpolitical; if the Germans thought they had scored a propaganda victory it was instantly evident that they were wrong, and they halted the broadcasts after only five. Wodehouse had displayed nothing worse than the stupidity of the innocent. He knew nothing of the political context, much less that his broadcasts came at a moment when the very future of Britain was in question.

But that fit precisely with Wodehouse’s literary landscape. Farce, of course, depends on its characters’ failure to recognize what is near at hand; Wodehouse in his splendid isolation in France and in a bygone fictional Eden was incapable of recognizing the crisis in Britain was so near at hand that his broadcasts would strike hard at his countrymen’s diminishing morale.

Orwell’s opinion of Wodehouse’s attackers was withering. “It was excusable to be angry at what Wodehouse did,” he wrote in 1946, “but to go on denouncing him three or four years later — and more, to let an impression remain that he acted with conscious treachery — is not excusable. Few things in this war have been more morally disgusting than the present hunt after traitors and Quislings. At best it is largely the punishment of the guilty by the guilty. … In England the fiercest tirades against Quislings are uttered by Conservatives who were practicing appeasement in 1938 and Communists who were advocating it in 1940.”

One could go on. The pleasures of Wodehouse are inexhaustible, so I’ll stop here. With some news about Trump’s tariffs threatening to disturb my peace today, and having just finished a rereading of “The Code of the Woosters,” I will share the next few hours with G. Darcy (“Stilton”) Cheesewright, Zenobia Hopwood, Edwin the Boy Scout, Boko Fittleworth and Percy, Lord Worplesdon, and their horseplay in and around Steeple Bumpleigh, Hampshire.

Advertisement

Looking back on the affair and its satisfying resolution, Bertie tells Jeeves, “There’s an expression on the tip of my tongue which seems to me to sum the whole thing up. … Something about Joy doing something.”

“Joy cometh in the morning, sir?”

“That’s the baby. Not one of your things, is it?”

“No, sir.”

“Well, it’s dashed good.”

Advertisement
Continue Reading

Business

Hundreds of Southern California Edison planners, technicians file for union election

Published

on

Hundreds of Southern California Edison planners, technicians file for union election

A group of planners, designers and field technicians at Southern California Edison on Thursday filed a petition for a union election with the National Labor Relations Board.

The move jump-starts a long-simmering unionization effort that comes amid scrutiny of the electric utility for potential mishandling of the devastating Eaton fire.

Hundreds of workers are asking to be represented by the Engineers and Scientists of California Local 20, which is part of the International Federation of Professional and Technical Engineers.

Of the more than 1,100 eligible workers of the proposed bargaining unit, a “strong majority” have signed union authorization cards, ESC Local 20 said. It declined to disclose the number of cards signed.

Advertisement

Workers sent Edison management a letter Thursday morning notifying the company of their intent to unionize. Workers said they began organizing more than five years ago, but the effort was derailed when the COVID-19 pandemic hit.

“This has actually been years in the making. I’m excited we are one step closer to forming a union,” said Aaron Pearson, a planner who has worked at Edison for more than 20 years. “We just want a real voice at work. We feel a union would give us the power to protect what’s working, fix what’s not working and keep communities safe.”

Brian Leventhal, a Edison spokesperson, said the company knows that its “ability to deliver clean, safe and reliable power depends on providing a rewarding and respectful work environment and competitive compensation and benefits to all [its] employees.”

“We respect the right of our employees to vote in an election and decide for themselves whether to join a union,” Leventhal said. “We are encouraging all our employees to take the time to become educated and to vote on what they believe is in their own self-interest.”

A separate union, the International Brotherhood of Electrical Workers Local 47, already represents construction linemen who install and maintain the overhead distribution and transmission lines.

Advertisement

John Mader, president of ESC Local 20, urged the company to take a neutral approach to the union so that workers could eventually vote in an election “without interference or intimidation.”

“These workers provide an indispensable service to the people of California, and their right to come together collectively to improve their working conditions must be respected and protected,” Mader said in a statement.

While the cause of the Eaton fire — which killed 18 people and destroyed more than 9,000 structures in Altadena — remains under investigation, residents have filed several lawsuits blaming Edison for sparking the conflagration.

Edison International Chief Executive Pedro Pizarro said this month that the possibility an idle, unconnected Edison transmission line reenergized is “a leading hypothesis” for what sparked the fire.

The company announced recently that more than 150 miles of electrical lines damaged by the Palisades and Eaton fires will be replaced with underground lines in a years-long project.

Advertisement

Workers said that they were not authorized to speak about the company’s handling of the fire and that their motivation to join the union had not been influenced by the disaster and resulting scrutiny.

“Our job is to make sure we have a safe and reliable system. We are just excited to have a voice at the table in how we go forward,” said David Morasse, a planner at Edison for about 25 years.

Once an election is held and if a majority of the bargaining unit votes in favor, the group of workers will officially join ESC Local 20 and begin negotiating their first contract with Edison.

Advertisement
Continue Reading

Trending