Yesterday, the market got a little bit of a late jolt on comments supportive of the Fed’s last two rate cuts from San Francisco Fed President Mary Daly. However, the bump was short-lived as the most intriguing Fed President doesn’t get a vote until 2021.

Still, her comments bolster arguments for those on the Fed that think there should be a more aggressive approach to rate hikes. Her rationale for rate cuts includes:

• Curbing expectations of rate hikes at the start of 2019
• Weaker global economy
• Trade tensions
• Geopolitical concerns

On the other hand, St. Louis Fed President James Bullard, who voted for a 50-basis point cut, argued among other things the Fed should be taking short-term debt yields more seriously. More importantly, for investors, Bullard seems very confident there will be additional rate cuts.

That’s good news for President Trump. Noted dove Neel Kashkari gets a vote next year, although it’s likely to be offset by Cleveland’s Fed President Loretta J. Mester, a noted hawk.

So, once again, we saw the stock market exhibit early resolve, climbing off a weak start, but not luring enough money off the sidelines to sustain traction.

One of the problems is cash or lack of cash flowing into the market, and that’s beginning to change.

Equity Fund Inflows:

• -$12.2 billion: 8.21.2019
• -$7.3 billion: 8.28.2019
• -$2.8 billion: 9.04.2019
• +$6.8 billion: 9.11.2019
• +$6.0 billion: 9.18.2019

The cash has reversed and has begun to pour into the market, largely via exchange-traded funds and a lot of that in passive investing. The good news is that a breakout could feed on itself as passive funds are forced to buy more stocks. The higher the market goes helps the market go higher.

Of course, it works the other way in reverse.

Portfolio Approach

We got a little more cautious yesterday, adding to Consumer Staples. We aren’t trying to hide out, as we still expect the idea to outperform the broad market, but it adds a level of safety to the model portfolio.   Cash is getting low, and we want to be long. A growth name is breaking out, but it’s hard finding ideas that fit all criteria.

The major indices are in the green this morning.  The Nasdaq and S&P500 are on track for their 3rd consecutive up day.