It was another session on Wednesday that was mostly pedestrian, although there was a moment when stocks began to tether after the Federal Open Market Committee (FOMC) minutes were released.
The much-anticipated report lived up to the hype and probably answered a lot of questions, although not to the absolute delight of all investors; the part where the Federal Reserve may wait until later in the year to stop its quantitative tightening program. This is the program to take back $50.0 billion monthly in accommodation.
The Fed has thus far taken back about $500.0 billion, which sounds like and used to be a lot of money. Considering the Fed balance sheet hit $4.5 trillion after lingering under $1 trillion for years, it underscores the challenge Powell & Co. are facing.
Beyond that challenge, there were compelling admissions. The stock market played a great role in the Fed changing its approach to policy. The US-China trade dispute played a role. Also, softening the inside core and overall inflation had to be factored in as well.
A lot of market purists believe the Fed should never consider or be swayed by the stock market. However, the powers on Wall Street that have gotten away, have been bullying the Fed forever. The most recent time was after Janet Yellen hiked rates the first time, and the market went into a tailspin. She waited for another year, and after the November 2016 presidential election.
The statement used the word “patient” thirteen times in conjunction with other words, including:
The bottom line is the Fed is playing ball and will take great care not to derail the economy and the stock market. The Fed is on pause and all voting members are on the same page. The fact is, for those complaining, the U.S. economy should be able to handle higher rates, and they are underestimating quantitative tightening at the same time.
Plus, the world is at much lower rates, and Americans need to compete on the global stage. That said, when some of those concerns like trade talks are resolved, the Fed is indicating they might be more inclined to hike rates.
As for the Fed hiking rates, I’m cool with that as long as it’s about credible threats of inflation - the kind that hurts - higher prices, not the kind that Americans desperately need like higher wages.
P.S. These higher wages do not have to instantly result in higher prices in the aftermath of the Great Recession. There won’t be too much money chasing too few goods, but we will continue to closely watch the action in investment grade and high-yielding junk bonds.
Bloomberg Barclays High Yield Bond ETF
Out of the Station & Gaining Steam
The market continues to rally higher, and the Street better figure it out sooner rather than later. The train is leaving the station. Those chilling on the station platform are wedded to their work or hunches, and they probably already regret it, but will they make adjustments?
- Russell 2000: +17.3%
- NASDAQ Composite: +12.9%
- Dow Jones Industrial Average: +11.3%
- S&P 500: +11.1%
The balance of the portfolio remains the same, but many ideas in the model portfolio are above our buy limit. Meanwhile, there are a couple of malingering ideas that look much better and are attractive buys right now. Make sure to check with your rep or firstname.lastname@example.org. If you are not a current subscriber to our Hotline service, click here to get started today.