Maybe it’s the not-so-invisible hand of the Federal Reserve that came to the rescue yesterday. Over the weekend, former Fed chairman Ben Bernanke published his work, suggesting the quantitative easing (QE) become a permanent part of the policy toolbox. That would mean the Federal Reserve would actively flood the economy with money, hoping it would prompt confidence and spending. Low rates and easy money will stir the economic pot, but Bernanke is also suggesting negative rates could be positive.

I’ve believed quantitative easing was already a de facto part of the Fed’s toolbox. Moreover, recent actions taken by Jay Powell are akin to QE, or as some call it QE-Lite, sending the Fed’s balance sheet soaring:

• $3,759,946,000,000: August 28, 2019
• $4,173,626,000,000: January 1, 2020

Meanwhile, Wall Street continues to price in at least one rate cut this year. Yesterday, Byron Wien of Blackstone stated that he sees two rate cuts.  

The not-so-invisible hand of the Fed isn’t what Adam Smith had in mind, but it’s working…for now.

Show No Fear

The market put in the kind of reversal that engenders confidence down the line as there are sure to be several tests of the rally early in 2020. All major indices rallied higher after opening lower with the Dow making a 275-point reversal into the close. It was the kind of session that makes someone a believer, or too bitter for words if they’ve missed the rally and convinced themselves they could get back in with a garden-variety pullback.

Powering the overall market higher is the newest S&P Sector: Communication Services.  Populated by many names, one would assume it would be Technology. However, Communication Services stumbled to life back in 2018, but has hit its stride and only seems to be getting stronger.

Yesterday, the leaders in the sector were two names that have been under unrelenting political and societal pressure: 

• Alphabet (GOOGL) is currently under investigation by 50 state attorneys general. It caught a higher share price target from Pivotal (PVTL), which now sees the stock climbing to $1,650 from the prior target of $1,445.
• Facebook (FB) routinely draws the scorn of people from all political backgrounds and is under investigation by 47 state attorneys general.

Alphabet and Facebook closed at all-time highs.

Portfolio Approach

Yesterday we added a position a new position to Technology.  If you have are not a current subscriber to Hotline, click here to get started today.