The Fed's Expeditious U-Turn

Feb. 06, 2019 4:51 AM ETFXE, EUO, ERO-OLD, DRR, ULE, EUFX, URR, DEUR, UEUR, TBT, TLT, TMV, IEF, SHY, TBF, EDV, TMF, PST, TTT, ZROZ, VGLT, TLH, IEI, BIL, TYO, UBT, UST, DLBS, PLW, DTYS, VGSH, SHV, VGIT, GOVT, SCHO, TBX, SCHR, SPTI, GSY, TYD, DTYL, EGF, VUSTX, TYBS, DTUS, TUZ, DTUL, DFVL, TAPR, DFVS, TYNS, RISE, FIBR, GBIL, HYDD, UDN, USDU, UUP, RINF1 Comment
Ivan Martchev profile picture
Ivan Martchev
1.34K Followers

Summary

  • My thesis remains that there will be a trade deal with China by the March 1 deadline.
  • I don't believe that anyone is looking for economic reacceleration in the United States in the second half of 2019.
  • I see a lot of positioning for an end to the U.S. dollar rally, given the outlook for a more patient Fed.

The latest FOMC statement and press conference certainly gave investors all they wanted to hear when it comes to Federal Reserve “flexibility,” which was a major issue in the 4Q-‘18 sell-off in the stock market.

“Patiently awaiting greater clarity,” as Jerome Powell put it last week, is very different than the “autopilot” gaffe he delivered on December 19, 2018, sending stocks down. Perhaps Jerome Powell has learned that as Federal Reserve Chairman it’s not just what you say but how you say it that moves the markets. Still, it has to be acknowledged that the numerous Twitter attacks from the President may have goaded the Fed Chairman into taking a firmer stand, which regrettably backfired in the stock market.

My thesis remains that there will be a trade deal with China by the March 1 deadline and, if enough progress is made, it is possible that the final deal will be made at a somewhat later date without tariffs on Chinese goods going from 10% to 25% on March 1. I believe that the announcement of a trade deal with China will serve as a catalyst for the U.S. stock market to retest its all-time highs.

U.S. stocks have already erased about two-thirds of their fourth-quarter losses (blue line, below).

chart4.png

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

I don't believe that anyone is looking for economic reacceleration in the United States in the second half of 2019, but when President George W. Bush passed his tax cuts in 2003, there was a surge in economic activity, a breather of sorts, followed by another surge. Is it possible that the economy will take a breather in the first half of 2019 and then reaccelerate in the second half? It sure is, but such a notion has not been

This article was written by

Ivan Martchev profile picture
1.34K Followers
Ivan Martchev is an investment strategist with Navellier Private Client Group. Previously, Ivan served as editorial director at InvestorPlace Media. Ivan was editor of Louis Rukeyser's Mutual Funds Newsletter and associate editor of Personal Finance Newsletter. Ivan is also co-author of The Silk Road to Riches (Financial Times Press). The book provided analysis of geopolitical issues and investment strategy in natural resources and emerging markets with an emphasis on Asia. The book also correctly predicted the collapse in the U.S. real estate market, the rise of precious metals, and the resulting increased investor interest in emerging markets. Ivan’s commentaries have been published by MSNBC, The Motley Fool and others. Currently Ivan is a weekly editor of Navellier’s Market Mail and a contributor to Marketwatch.

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