Displaying items by tag: fed

(New York)

Investors have been playing defense in stocks for months. Everyone has been very spooked by economic data and the trade war, which has caused a rotation into defensive sectors. However, a top manager at Fidelity, Denise Chisholm, is saying the opposite: it is time to play offense. Her core argument is that real interest rates in the US are negative--which happened after the Crisis and also in the 1970s and 1980s—which is highly bullish for the stock market. Further, the ECB and Fed are cutting at the same time, a quite rare occurrence, and one that has always led to an equity market rally.

FINSUM: This is an interesting contrarian argument. We particularly like the ECB + Fed narrative.

(New York)

Quick quiz: what is the pillar of this bull market? Unless you answered “the US consumer”, you probably are not getting a passing grade. Therefore, any dents to the teflon-coated US consumer are very worrying, and that looks like the road we are headed down. New consumer spending data is in and it is poor. Spending at gas stations, on cars, and on home materials was considerably weaker. The overall boom in spending now appears to be over as we head into the winter, which could prove to be more than just meteorological.

FINSUM: There is good news and bad news. On the downside, this means that consumers may no longer be able to shoulder the load of carrying the economy. On the positive side, this could lead to rate cuts by the Fed, which the market would love, at least in the short-term.

(New York)

It may seem overly bearish right now, but put this one in the “take note” category. A hedge fund manager on Bloomberg yesterday argued that the market looks set for a bear market downturn very similar to last year. According to the manager, a mix of liquidity constraints, insufficient Fed support, and large geopolitical issues, could all combine to drive prices down 20% or more in benchmark indices. The most interesting part of this argument is that he contends the pressures will create this downturn in the next few weeks.

FINSUM: Last year’s bear market was principally about investors worrying the Fed would hike the market into a recession. That is a completely different backdrop from right now. We don’t discount the chances for a downturn, but this logic does not seem sound to us.

(New York)

It was uncertain for a while, and still is, but markets are increasingly expecting the Fed to cut rates again this month. Investors now put around a 75% chance that the Fed will slash rates by another 25 bp this month. The interesting thing is at the beginning of this week, the market’s odds were under 40%. However, the release of weak manufacturing data a few days ago sent expectations surging that the Fed would once again step in.

FINSUM: New jobs report data out today will only bolster the case for further rate cuts.

(New York)

Every advisor is likely already aware of the huge ruction that occurred in money markets this week. A number of short-term stresses sent over-night borrowing rates up to 10% this week before the Fed had to intervene to inject tens of billions of Dollars of liquidity to calm things down. Most media outlets have explained this as a number of cyclical short-term factors, without really giving any specifics. The whole episode has been curiously vague. This has led to an unusually fertile environment for rumors and speculation.

FINSUM: So our readers will know that we have been reporting for years, and we must say that this has been one of the oddest, mostly poorly reported, and vague events we have ever covered. None of the cited reasons of this money market flare up make much sense relative to the scale of money the Fed has pumped in. One of the best rumors we have heard is that there may be a bank failure coming. Just before this market flare up, oil jumped almost 20% in a day, its single largest one-day move ever. That kind of black swan event could easily destabilize a large financial institution if it was positioned the wrong way, and ultimately led to the kind of short-term funding desperation we saw before the last Crisis. This analysis is probably all wrong, but the situation must be taken seriously.