Home About Archives RSS Feed

@theMarket: The Fed Finds Religion

By Bill Schmick
iBerkshires columnist
After two years of tightening monetary policy, the U.S. Federal Reserve Bank signaled this week that it was time to put their monetary tightening program on hold. The stock market soared in celebration.
 
As we closed out the month of January, stocks are gaining. The October-December declines that culminating in the "Christmas Eve Massacre," which were the worst in 80 years, are rapidly disappearing. Investors who were smart enough to hold fast should be made whole again by the end of this quarter, if not before.
 
That does not mean that the volatility that has beset the markets of late will fade away. Quite the contrary, I expect the wild swings in the stock market to continue. But for now, the Fed has once again provided a floor of support for equities. The question to ask is:
 
"Was the Fed's move justified, or did the markets (and Donald Trump) scare Chairman Jerome Powell and his committee into backing off?"
 
I would say there is a little of both in the Fed's actions. While the economy is still growing, "the case for raising rates has weakened somewhat," according to Powell, who spoke after the FOMC meeting on Wednesday. Of course, he reminded his audience that the Fed would still be "data dependent" in deciding when the next interest rate hike might occur.
 
That was a sea change in rhetoric from last quarter when the Fed chief said rate increases and sales of $50 billion a month U.S. Treasury bonds were largely on autopilot. President Trump threw a fit, making his own dissent from that policy quite clear. He believed that the Fed's actions were causing the economy to slow. He lashed out at the man he hired last year to lead the Fed and threatened to have him fired.   
Whether it was his words or the fact that the markets threw a hissy fit, plummeting almost 20 percent in a matter of weeks, is debatable. Whatever the reason, the Fed did a 180 and has returned to the easy money religion that has galvanized the stock market since the financial crisis of over a decade ago.
 
Some of the key variables that the Fed studies in order determine monetary policy are wage growth, inflation, GDP, and unemployment (among others). None of them are flashing warning signs yet. Yes, economic growth is moderating but is still growing. Yes, we are seeing some wage growth, but it is not out of hand by any means.
 
Friday's employment report indicated wage growth is moderating, although jobs are still gaining. Nonfarm payrolls surged to 304,000 jobs versus estimates of 170,000. Evidently, the government shutdown didn't have that much impact on the data, although the official unemployment rate did tick up to 4 percent, which is where it was back in June of last year.
 
Granted, corporate earnings are slowing, but if this quarter's earnings season is any indication, many companies are still seeing good gains from the economy.  So maybe, just maybe, all those Doom Sayers predicting an imminent recession are wrong. It seems to me that we are in an economic sweet spot that will support stock prices through the remainder of the winter.
 
Last week, I predicted the S&P 500 Index would touch 2,715. We hit 2,716 on Friday. That brought the gains for the three averages for the month of January to 8 percent for the Dow, 9.5 percent for the S&P 500 Index, and 12 percent for the NASDAQ. That was the best stock market performance in thirty years.  For those of you who followed my advice and held on to your positions through the last quarter of 2018, you have now recovered the lion's share of your losses.
 
We have seen some good gains, however. So, I would expect to see a period of consolidation in the weeks ahead. Any dips in the market would be an opportunity to buy not sell. For those of you who sold last quarter, I am sorry, but you will probably get a chance to buy back in the months ahead.
 
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $400 million for investors in the Berkshires.  Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
 
0 Comments
     

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Anthony Sculptor Wants Commemorative Statue to Educate, Inspire
North Adams Votes to Adopt State Minimum Wage for Workers
Wayfair Finalizes Lease For Clocktower Building
Great Barrington Author Wins Awards for First Novel
Williamstown ZBA Continues Marijuana Farm Petition to March Meeting
Cultural Pittsfield This Week: Feb. 22-28
Pittsfield Grants Waiver For Proprietor's Lodge
Mount Greylock School Committee Educated About Baseball Program Change
'Isn't It Romantic': It's to Laugh
Cheshire Considers Buying Street Lights for LED Switch

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



Categories:
@theMarket (281)
Independent Investor (384)
Archives:
February 2019 (5)
February 2018 (1)
January 2019 (6)
December 2018 (4)
November 2018 (9)
October 2018 (5)
September 2018 (4)
August 2018 (9)
July 2018 (2)
June 2018 (8)
May 2018 (8)
April 2018 (7)
March 2018 (6)
Tags:
Debt Bailout Wall Street Energy Europe Recession Japan Pullback Interest Rates Debt Ceiling Euro Currency Election Oil Banks Housing Deficit Fiscal Cliff Retirement Economy Stimulus Jobs Metals Taxes Europe Greece Congress Markets Stocks Federal Reserve Rally Commodities Crisis Selloff Stock Market
Popular Entries:
The Independent Investor: Don't Fight the Fed
@theMarket: QE II Supports the Markets
The Independent Investor: Understanding the Foreclosure Scandal
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: Will the Municipal Bond Massacre Continue?
Recent Entries:
The Independent Investor: Economic Prosperity in the United States
@theMarket: Markets Gain on Hope & a Prayer
The Independent Investor: Trump's War on Drug (Prices)
@theMarket: Markets Are China Dependent
@theMarket: The Fed Finds Religion
The Independent Investor: Europe, the World's Sick Sibling
The Independent Investor: The IRS Has Its Hands Full This Year
@theMarket: Markets Retrace December Losses
The Independent Investor: Pay Gap for Women Is Growing
@theMarket: Markets Bounce 10 Percent Since Christmas