Intersection of Markets & Politics
Written by: Ryan Bouchey
Wednesday’s speech by Federal Reserve Chairman Jerome Powell was both interesting and impactful in that it set a much different tone & direction for what the Fed may do going forward as it relates to interest rates. Not only was Chairman Powell’s comments an indicator of what the Fed may do moving forward, but it gave us a look into investor sentiment and what may have been driving investor behaviors these past two months as we saw markets briefly dip into correction (10% drop) territory.
As far as the Fed is concerned, Chairman Powell’s tune has certainly taken a 180 degree turn from his comments in early October. Back then the Fed announced they were well short of neutral from an interest rate perspective, meaning they had a long way to go in raising interest rates. This coincided pretty closely with the markets peak at the end of September, and may have been a driver of market volatility we experienced throughout October & November.
Where do politics come into play? Well it’s been no secret that President Trump hasn’t been the biggest Jerome Powell fan of late. Trump has blamed the Fed for raising rates too quickly, thereby derailing the markets. While we do not think only the Fed is responsible for this current sell off, nor do we think it’s appropriate for President to meddle with Fed policy, Powell’s remarks yesterday about interest rates being “just below” neutral levels was a much different tune than what he said just last month without giving much explanation for why we went from well below neutral to just below neutral. As you can see from the S&P 500 chart from yesterday, the markets viewed this as a real positive sign:
What this tells me is that markets have been spooked lately by the threat of rising interest rates. While we continue to be of the opinion that at these historically low rates a rising interest rate environment won’t be the only reason to slow down markets or the economy, at some point too high of interest rates are detrimental – but we still have some room before we get there. The markets and economy will eventually slow down due to a combination of higher rates and other existing factors that may not have presented themselves yet. It’s hard to say if yesterday’s market rally will continue moving forward, but we are of the mindset that given current stock valuations and economic conditions there is room to run in this rally. And with yesterday’s reaction, we are led to believe that the fear of fast rate hikes was a major headwind for the markets. If the Fed changes its tune and decides to move forward at a slower pace, could be a big benefit for investors. Combine that with potential resolution with China, and we may be heading towards a Santa Rally after all!
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Bouchey Financial Group, Ltd. [“Bouchey Financial”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, no portion of this discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Bouchey Financial. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Neither Bouchey Financial’s investment adviser registration status, nor any amount of prior experience or success, should be construed that a certain level of results or satisfaction will be achieved if Bouchey Financial is engaged, or continues to be engaged, to provide investment advisory services. Bouchey Financial is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Bouchey Financial’s current written disclosure Brochure and Form CRS discussing our advisory services and fees is available for review upon request or at www.bouchey.com. Please Note: Bouchey Financial does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Bouchey Financial’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a Bouchey Financial client, please contact Bouchey Financial, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.