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Summary and Conclusion:

Asset prices rose in March as market participants became more confident that the Federal Reserve would remain on hold during 2019 regarding the level of the Federal Funds rate and trade negotiations with China would end on a positive note. Market participants were encouraged by the message from the March Federal Open Market Committee (FOMC) meeting that signaled a tapering of the balance sheet normalization program and an end of the program in September. In addition, the FOMC repeated its intention to maintain its pause in increases in the Federal Funds rate and further changes in the Fed Funds rate would be data dependent. Market participants are now more positive than they were last month that they will see no rate increases during 2019. Market prices imply no increases in the Fed Funds rate during 2019 and any change in rates would be a cut. However, the Fed has maintained its balance sheet reduction at $50 billion during April, but Chairman Powell stated during the Press Conference that they would begin tapering the balance sheet reduction and end the program in September. We should learn more about the balance sheet normalization program when the minutes of the March meeting will be released on April 10 and when the Press Release is issued after the May 1 FOMC Meeting and we hear Chairman Powell’s statements during the Press Conference. Although asset price volatility has been low during March, asset prices have responded to news on China trade negotiations (positive) and on U.S. and global data releases on economic activity (negative). Data on economic activity has been negative on balance in both the United States and the Rest of the World -- a decline in global international trade in December and January (often an indicator of an economic slowdown/recession) and weaker economic activity in China, Europe, and the United States. The IMF indicated that they will lower their outlook for the global economy when they release their global economic outlook next week. (Data releases for the United States will be distorted for the next few months because of the way the Bureau of Economic Analysis accounts for the effect of the government shutdown on published economic output and prices – lower output and higher inflation in 2019Q1 and higher output and lower inflation in 2019Q2.) The yield curve flattened and briefly inverted (U.S. Treasury 10 year – 90 day) – another signal for past recessions..

Weekly Market Commentary

April 15, 2019

The Markets

Investors took an intermission.

The curtain appeared to close on the first act of 2019 last week – and what an impressive act it was. The Standard & Poor’s 500 Index delivered some dramatic returns and is less than 1 percent away from a new all-time high.

Weekly Market Commentary

April 8, 2019

The Markets

The first quarter of 2019 brought a welcome reversal.

 April 3, 2019

Note for April Investment Committee Meeting

Summary and Conclusion:

Weekly Market Commentary

April 1, 2019

The Markets

“Fascinatingly counterintuitive…”

Weekly Market Commentary

March 25, 2019

The Markets

Wonder what the Federal Reserve’s 40-yard dash time is?

On Wednesday, the Fed juked like an NFL running back and left investors wondering whether they should buy or sell. Heather Long of The Washington Post reported the U.S. central bank:

1.      Lowered its 2019 estimate for U.S. economic growth to 2.1 percent

2.      Announced its intention not to raise rates in 2019

3.      Indicated it will stop shrinking its balance sheet in September

Fed Chair Jerome Powell explained, “My colleagues and I have one overarching goal: to sustain the economic expansion with a strong job market and stable prices for the benefit of the American people. The U.S. economy is in a good place and we will continue to use our monetary policy tools to keep it there…We continue to expect that the American economy will grow at solid pace in 2019, although slower than the very strong pace of 2018.”

Weekly Market Commentary

March 18, 2019

The Markets

Stock and bond markets rallied.

Summary and Conclusion:

Asset prices rose in February as market participants became more confident that the Federal Reserve would remain on hold regarding the level of the Federal Funds rate and trade negotiations with China would end on a positive note. Following the January Federal Open Market Committee (FOMC) meeting, asset prices rose as the FOMC assessment indicated a pause in increases in the Federal Funds rate and further changes in the Fed Funds rate would be data dependent. Market participants are now more positives than they were last month that they will see no rate increases during 2019. However, the Fed has maintained its balance sheet reduction at $50 billion per month, but stated that they would be reviewing its balance sheet normalization policy with an emphasis on the size of the balance sheet once normalization is completed. Market participants appear to believe that the Fed will put the balance sheet normalization program on hold following the March FOMC meeting. Thus, we could see some increased market volatility following the March 20 FOMC meeting and press conference. Asset prices began to reverse course in early March as markets digested news of a decline in global international trade in December (often an indicator of an economic slowdown/recession) and weaker economic activity in China, Europe, and the United States. (Data releases for the United States will be distorted for the next few months because of the way the Bureau of Economic Analysis accounts for the effect of the government shutdown on published economic output and prices – lower output and higher inflation in 2019Q1 and higher output and lower inflation in 2019Q2.)

Weekly Market Commentary

March 11, 2019

The Markets

Markets were rattled last week.

The market hates surprises, especially when the surprise comes from a central bank. Last week, the European Central Bank (ECB) unexpectedly reversed course and took a more accommodative stance on monetary policy in an effort to encourage stronger European economic growth. Tom Fairless of Barron’s explained:

Weekly Market Commentary

March 4, 2019

The Markets

Is it a soft landing?

Economists use aviation metaphors to describe the results of central banks’ efforts to manage rapidly growing economies. If the Federal Reserve lifts rates enough to prevent the economy from overheating without jolting it into recession, then it has engineered a soft landing, according to Investopedia. (Rate increases that drop a country into recession are hard landings.)