Weekly market update
A FED FUELED RALLY – AND A TRADE TRUCE
Christmas came early for investors over the last week – first, we got a speech from FED Chair Powell that turned dovish and then over the weekend, we got news of a “Trade Truce” between the U.S. and China.
Just a couple of weeks ago I said two “problems” for investors also contain seeds for tailwinds in the next stock market rally:
- If we were to get some type of positive or even neutral resolution on trade – this would go a long way at boosting corporate confidence and perhaps boost capital expenditures. Take a look at the spikes in U.S. stocks on Thursday and Friday off the headlines surrounding positive news on trade.
- If the FED was to take a pause at raising rates. You could say that’s a positive for stocks, but then again, not so much for the economy. It is a fine line between which is more important – I vote for the former over the latter.
We got #2 last week.
So, let’s take a look at these two a little more closely.
On October 3rd, FED Chair Jerome Powell told us in NO uncertain terms that we were a long way from neutral and in fact may have to go PAST neutral to ‘reign her in’ (her being the economy) – in fact – it was THAT commentary that started the meltdown that took 11.5% out of the S&P, 10.5% out of the Dow and 14.6% of the Nasdaq in 18 days – count them – 18! Here is his commentary – “The really extremely accommodative low interest rates that we needed when the economy was quite weak, we don’t need those anymore. They’re not appropriate anymore, Interest rates are still accommodative, but we’re gradually moving to a place where they will be neutral. We may go past neutral, but we’re a long way from neutral at this point, probably.” This is the precise time the markets fell out of bed.
Last week, he said this, “Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy — that is, neither speeding up nor slowing down growth.” The key words here are “just below” – last month we were “a long way” from neutral on rates and last week we were “just below”. That change in stance is what propelled stocks. I’m not going to say the President’s criticism of FED Chair raising rates prompted this, but I can’t say it didn’t either -and BOOM -stocks were off to the races propelling the Dow up 5.3% on the week, the S&P 4.9% and the NASDAQ 5.66%.
We got # 1 over the weekend – the “Trade Truce”.
Presidents Trump & Xi agreed to a temporary truce in the trade war for 90 days, though most research on the subject today suggests the agreement is more band-aid than cure; (notwithstanding markets’ cheer)!
JPMorgan weighed in on the subject – “On the whole, this ceasefire looks very similar to what China had offered Washington months ago (the White House rejected that proposal at the time as insufficient) and thus it isn’t exactly clear what was gained by dragging the dispute out until the end of the year.” Regardless of what or why, the truce helped keep the stock market rally alive and kicking.
Looking ahead, the rally we have gotten the past week was needed to repair a lot of damage technically and mentally, but the bulls do not want to see a let up in jobs growth. This Friday, we’ll get the latest on nonfarm payrolls and it won’t be just “any ole report.” Job growth to a bull market is akin to water to a plant. Without it, the other dies. A potential early warning signal for a bear market is a slowdown in job growth. Currently, the ascent in jobs appears to be intact, so we’ll want to watch this Friday’s report to see if there’s any deterioration. A slowdown wouldn’t necessarily signal a bear market, but it would be another great big check mark in the bears’ column.
So, we’ll take what we can get and make the most of it, I urge you to stay tuned and we’ll keep you posted.
