1/25/2019 Weekly Update: Recapping the Narrative
by Zach Marsh on Mar 1, 2019
S&P 500 -0.25%
10 Year Treasury +.83%
Weekly Update: Recapping the Narrative
Hindsight may be 20/20, but only to the delusional or amnesiacs. Just one month ago the market was teetering on the brink of disaster. The Christmas Eve sell-off brought fear and confusion to a market already suffering from its worst 4th quarter since the 2008 Financial Crisis. Now, following a nearly 15% rally from the depths, many pundits are talking about how predictable the snap back rally really was. Ironically, these pundits are the same ones talking to us on television about how this or that political, or international, event could potentially spell danger for the market. So, for fun, I decided to look over the narratives that were gripping our market headlines at the end of December and see what’s changed.
On Christmas Eve, the market was struggling with the following stories:
- Announced Federal Reserve policy of 3 rate hikes for 2019 and a continuation of Quantitative Tightening.
- No resolution of the US/China trade dispute.
- Government Shutdown.
Since that time, here’s what has changed:
- On January 10th Governor Powell suggested that the Fed may lower its forecast to two rate hikes for 2019. Furthermore, the Wall Street Journal today reported that Fed is close to deciding that they will maintain a larger bond portfolio than they expected, or effectively ending the Quantitative Tightening earlier. Now, this is speculation, not fact, but the report helped fuel today’s market action.
- On the trade front there still is no resolution, but plenty of rumors are spread almost daily, which continue to push the market higher.
- Finally, after 35 days, the Federal government seems to be on the verge of reopening, with an announcement today of an agreement. Considering that the market rallied 10% plus since they shutdown, its impact on the market is highly questionable.
When stacked up, it seems like not a whole lot has really changed. Jerome Powell did concede to one less rate hike, but aside from that the rest seems based upon rumors of trade resolution and a change in the Fed’s Quantitative Tightening. Analyzing the current situation, as we stand today, any actual resolution of the trade war and further Fed policy change seems to be greatly baked into the cake. Should these events actually transpire, especially trade policy, it would seem like the impact will be limited. However, should these events not come to pass, we could well be in store for a negative market reaction. More likely, the next couple weeks will be driven by corporate earnings. In the next two weeks the largest companies in the S&P are set to release results: Microsoft, Apple, Amazon, and Google. How these companies perform will greatly impact the direction of the market.
Thanks for reading,
Zach and Dave
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