Today, March 20, the Federal Reserve left benchmark interest rates at the current 2.25% to 2.5% range at the meeting of the Open Market Committee, but cut its forecast for U.S. economic growth in 2019 and voiced concern about slowing consumer and business spending. The U.S. central bank reduced its forecast for 2019 growth in U.S. GDP to 2.1% from the 2.3% growth forecast in December. All those worries, however, were outweighed by a dot plot that showed the consensus at the Fed was to leave interest rates unchanged for the rest of 2019. That call for no interest rate increases in 2019 contrasts with the two interest rate increases in the dot plot consensus in December.
"Fear of missing out" is driving this stage of the market rally. Fund managers were under allocated to equities at the start of the year and are now playing catch-up with the indexes. And since the consensus is that the Federal Reserve has the market's back, there's very little fear that playing catch up now carries significant risk. The latest survey of fund managers from Bank of America shows that allocations to stocks are at their lowest since September 2016. That certainty implies that many fund managers have missed the 2019 rally and will be looking to catch up by putting more of their cash to work in stocks. The Standard & Poor's 500 was up 3.3% in the last six sessions before today.
At a moment when all of brick and mortar retailing can seem to be suffering, Dollar General (DG) has announced that it will open 975 new stores in 2019 and remodel 1,000 existing stores. For 2019 capital expenditures are projected at $775 million to $825 million or about 3% of sales. Besides the new stores the company will also invest in speeding up the introduction of self-checkout lines, optimizing restocking practices to reduce in-store labor demands, and in-sourcing of more perishable food distribution. (Importantly 10 of the new stores will be new smaller formats aimed at younger customers.) In the fourth quarter sales climbed 8.5% year over year with same store sales up 4% year over year. Same store sales climbed on increase in the average transaction amount and in customer traffic. I think it's safe to say that the new stores announcement is a statement of the company's confidence in the future. So why is Dollar General able to buck the trend that has taken down so many other retailers?
Few awards are increased on petition, so a sound approach and good reasons are required.
According to a Bloomberg survey of 32 economists, the Federal Reserve will remain on hold until September. Then it will raise interest rates one final time. And that will bring an end of the recent cycle of interest rate increases. The financial markets beg to differ.