Ready to Pounce
I have been talking about the market sell off that occurred for the past six-weeks leading us to an amazing buying opportunity. I’ve been writing and talking for weeks about making a list and refining that list. I have been stressing that I’m really close to getting very aggressive about buying in this market.
The rally needed to be tested, the kind of test with several issues from trade, U.S. economic concerns, and the global economic slowdown. The recent pullback had very little to do with actual economic data or changes in investing propositions.
Well don’t look now, but this week, the market is close to having the best week of the year. But the market rally is becoming a run-of-the-mill “good” year, rather than the explosive year that saw mind-boggling returns through the first four months. That torrid pace would have given us a year for the record books if it was maintained. Ironically, it’s the investors that just dump a portion of their paycheck into the market and “never looked” that assumed such a move was possible or somehow ordinary.
As it stands, this is still an impressive year:
There has been lots of noise, including non-stop scuttlebutt about whether tariffs in Mexico would be levied or delayed, and the potential impact from tariffs on Chinese and Mexican goods. I don’t believe tariffs will be implemented on Mexican exports into the United States, but it’s an unknown that must be factored into the decision-making.
This has many experts wondering when the Federal Reserve comes into play. Remember that the sell-off last month began with Wall Street’s disappointment with Jerome Powell, who pushed back on the persistent deflation as nothing more than a short-lived situation. I didn’t believe that then, and I certainly don’t believe it now.
I’ve listened to half a dozen Jay Powell speeches and read transcripts of many more, and it’s clear he thinks the Federal Reserve saved the economy, and he is determined to protect the expansion by any means necessary, including making “unconventional tools” part of the everyday options in his quiver of policy arrows.
This week, Jerome “Jay” Powell once again underscored the importance of the Federal Reserve and its mighty printing press. His comments to the markets were that no matter what issues may create weakness, including typical business cycle attrition, he is ready, willing and able to step up to the plate.
I’ve said this before, and will say it again, Jay Powell is proud of the role the Fed has played and considers it the main reason the nation survived the Great Recession.
Of course, many want the Fed to do more than come to the rescue, they want them to help goose growth even more. Parts of me believe Powell wants to step up and do that as well, although such moves would require years of messaging. For the most part, he would be content to make sure there are no recessions during his watch, so he’ll need those unconventional tools and more.
Wall Street wants to have its cake, and eat it too, and get rate cuts even with economic expansion.
The biggest thing happening right now by a factor of millions is the reinvention of the Federal Reserve -Some got it wrong this week. It’s not about the trade war. Heck, the Fed has already said over and over there has been de minimis impact - but those in any conversation throw some off the scent.
We heard from several Fed members this week and more about potential rate cuts. Comments from New York Federal Reserve President John Williams yesterday dovetailed recent comments from other Fed officials. It also dovetails with my theory, that the Powell-led Fed is determined to prevent a recession. It’s a lofty goal, which alters the approach to policy and makes the Federal Open Market Committee (FOMC) more like police officers than firefighters.
NY Fed Williams added to the metamorphosis. This is beyond huge, a Fed that's ready to help the economy rather than save the economy – let’s not forget this week PBOC added $72 billion to China’s economy. Powell's goal is no recessions, and if it puts him in bed with Trump, so be it.
I think the backdrop is set for Powell to pounce and markets to cheer. The expansion is long in the tooth, and while the old saying is expansions don’t die from old age, managing them becomes more difficult.
The highly anticipated May jobs report was much lower than expected, adding 75,000 jobs compared to the estimates of 180,000. April was revised lower to 224,000 from 262,000 and March to 153,000 from 189,000. The unemployment rate remained at 3.6%. Labor for participation was 62.8, and wages were up 3.1% slightly below the expectations of an increase to 3.2%.
Private sector added 90,000 jobs.
Retail had the greatest decline, losing 7,600 between April and May. The other major industries showed little change. Government jobs declined by 15,000.
While one report doesn’t indicate a trend, trade tensions, tariffs and slowing global growth are showing signs of impact on the economy. This report adds yet another data point to support a potential rate cut, sooner rather than later.
The market is embracing this report. And I am ready to pounce.
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