Home About Archives RSS Feed

@theMarket: Stocks Should Move Higher From Here

By Bill SchmickiBerkshires columnist
It was a good week for investors. The S&P 500 Index hit an all-time high. The Fed indicated that they might cut interest rates sometime soon, and the President is once again optimistic about a China trade agreement. That’s a heady cocktail that could see markets gain another 3-5 percent over the next few weeks.
 
Of course, the critical caveat to my forecast remains President Trump's next tweet on the progress of a trade deal with China. As you know, with such a big “if” on the table, making future forecasts with even a modicum of certainty is impossible.
 
In last week's column, I enumerated all the scenarios that could play out, but it really comes down to how much faith an individual has in the president's ability to pull-off a deal with China. And while a successful agreement would definitely be good for the economy over the long term, I am not so sure it would be beneficial for the stock market.
 
My concern rests upon the Fed's reaction (or lack thereof) if an agreement is put in place. Chair of our Federal Reserve Jerome Powell has hinted that cutting interest rates would largely depend on what happens next on the trade front. That has sent the stock market to new highs.
 
The Fed reasons that additional tariffs of the size contemplated by Trump would impact our economy by over one half of one percent. That would be on top of a U.S. economy that is already slowing, thanks to the existing level of tariffs, and the rhetoric of even more actions if things don't go the president's way. Under those circumstances, one, two, or even three rate cuts could be justified by the Fed.
 
On the other hand, if the economic pall of trade sanctions were to be removed from the world's economies, there would be few, if any, reasons to cut interest rates. In fact, if global growth picked up as a result of a trade deal, an interest rate hike might be the better policy. Of course, that won't sit well with a President who expects to be re-elected on the back of a strong stock market and economy.
 
"Let's see what he does," warned Trump, when asked about the future of Jerome Powell. Trump would like interest rate cuts now to back-stop him (and the economy) if the G-20 meeting with President Xi Jinping blows up in his face next week. In the event the meeting is progressive, and chances of a deal improve, Trump wins (in his mind) on all fronts. A stronger economy, a higher stock market, and a campaign promise almost fulfilled.
 
From the central bank's point of view, doing the president's bidding now before the certainty of a trade deal, opens up the possibilities, in the medium-term, of an over-heated economy, a spike in inflation (that may be difficult to control), and a Pandora's box of subsequent economic dislocations down the road.
 
Despite the pressure from the White House (firing or demoting him if he doesn't cut rates now), Powell, while sounding dovish, managed to avoid cutting rates this week, not that the market expected him to. He couched his language with just enough promise to satisfy Wall Street and mollify the President.
 
The markets anticipate 2-3 interest rate cuts between now and the end of the year; so does the president. By maintaining a wait-and-see attitude despite, the fact that almost half of the Federal Open Market Committee members are urging a rate cut, Powell is between a rock and a hard place.
 
My bet is that next week, the Trump/Xi meeting goes well. There will be more negotiations, but no deal. The markets will like it. The economy will not, and thus should continue to slow. That will set up the Fed to cut the Fed Funds rate by a quarter point in July. The tension, the wall of worry, the negotiations, and the atmosphere of uncertainty swirling around the president's next tweet will continue throughout the summer. That should be good for the market and your portfolio.
 
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
Pittsfield Confirms COVID-19 Cases In Post Office
Pittsfield and Dalton Household Hazardous Waste Collection
Letter: Vote Lynette Bond for Mayor
Letter: Macksey Is the Best Candidate to Lead North Adams
Mass MoCA, Clark Art Announce Vaccine Requirement
Letter: Macksey Has the Qualifications for Mayor
World Osteoporosis Day
BCC to Participate in Berkshire STEM Week
Mount Greylock School Committee Hears Criticism of September Vote on Synthetic Field
Pittsfield City Council OKs Lee Bank's 2nd Location on South Street
 
 


Categories:
@theMarket (385)
Independent Investor (451)
Retired Investor (62)
Archives:
October 2021 (4)
October 2020 (4)
September 2021 (9)
August 2021 (6)
July 2021 (8)
June 2021 (6)
May 2021 (6)
April 2021 (9)
March 2021 (8)
February 2021 (8)
January 2021 (5)
December 2020 (6)
November 2020 (8)
Tags:
Recession Bailout Stocks Wall Street Pullback Energy Euro Metals Election Fiscal Cliff Debt Taxes Japan Retirement Congress Housing Europe Markets Selloff Stimulus Greece Deficit Banks Commodities Interest Rates Currency Europe Federal Reserve Oil Rally Stock Market Debt Ceiling Crisis Economy Jobs
Popular Entries:
The Independent Investor: Don't Fight the Fed
Independent Investor: Europe's Banking Crisis
@theMarket: Corrections Are Good for the Soul
@theMarket: The Bottom Is In
@theMarket: A Week to Forget
@theMarket: Let the Good Times Roll
@theMarket: 707 Days
@theMarket: No More Than 5 Percent
@theMarket: This Is the Year for Commodities
@theMarket: One Down, One to Go
Recent Entries:
@theMarket: Markets Snap Out of Their Downtrend
The Retired Investor: Barbie Gets Better With Age
The Retried Investor: Golf Continues to Grow
@theMarket: Markets Are on the Cusp
The Retired Investor: Out of Gas
@theMarket: The Dip Buyers Return
The Retired Investor: Weather Worsens Global Trade
@theMarket: Markets Enter the Danger Zone
The Retired Investor: Moderates Winning on Tax Debate
@theMarket: Some Brokers Are Getting Bearish