The Fed deciding not to increase rates, and instead to “be patient” is another way of saying they have zero confidence in our economy’s ability to handle rates at even 3% for 10 years – which is incredibly bearish.
It’s so bearish that the market loves it. The market loves easy money. Many market participants (and people in general) fail to look at the second order effects and instead focus only on the first order effects of a decision.
Happy Birthday Grams!
The stock market has continued to run higher and higher, seemingly without a breather of any kind. We are witnessing one of the sharpest v-shaped recoveries that markets have ever seen – and as we know from experience – things that can’t go on forever, won’t. And the kicker is that since falling nearly 20% to end 2018, not only have the markets still not made a new all-time high, they still haven’t even made a higher high.
On the bright side, we did finally see prices close solidly above the 200-day moving average (for the S&P 500), signaling a possible resumption of the long-term up-trend.
Markets have rallied to start the year with tax-loss selling having run its course and a lot of value being found by stock screening programs. You see, if the market price has come down but the projected earnings have not yet been updated, a given stock will appear relatively cheaper than it used to. But this is fool’s gold if it turns out that the earnings are later revised lower on a forward basis.
1931 was the last time stocks had this bad of a start to December - and that doesn’t include yesterday’s drop of around 1.5% which came after being up as much as 1%, early in the day. For anyone who thought that the Federal Reserve Chairman, Jerome Powell was going to come the rescue of falling markets and deliver a Santa Claus Rally, they were mistaken.
