Never confuse the stock market for the economy. They are two very different things. And whilst there are times when the two will trade in unison – there are also plenty of occasions when they diverge. Now is possibly the latter. For example, this week we had a plethora of ‘less than positive’ economic news. But it didn’t stop the market surging back to near record highs. Why? Every bit of bad (or soft) economic news is a step closer for the Fed to lower rates.
"Interest Rates / Bonds"
Powell Appeases the Market… Or Does He?
For me, there were two (big) questions for the Powell this week: (1) are rate hikes off the table – given faster-than-expected inflation and continuing economic strength? and (2) when will the Fed commence QT tapering (and by how much)? Powell was unequivocal on possible rate hikes… forghedaboudit. Equities cheered. But why remove optionality? Why Powell is so convinced we don’t see a re-acceleration in inflation? Admittedly it’s a lower probability outcome… but we can’t rule it out. But he apparently can…
When Is the Right Time to Buy Bonds?
Treasury yields are surging… the U.S., 10-year treasury – a rate which every financial asset is tied to – has ripped back above 4.60%. Credit card rates, home loans, auto loans… you name it… have all increased. The last time UY.S. 10-year yields traded above 4.60% – the S&P 500 was ~20% lower. From mine, the divergence is a head-scratcher… however, what I can say is risk assets have a tougher time advancing when yields push beyond this zone. The question is – is now a good time to increase bond exposure? I think the answer is yes.. and here’s why
Rate Cuts and Small Business Optimism Fades
Make that three in a row. Jan, Feb and Mar CPI all exceeded expectations – showing how stubborn inflation can be. And whilst the Fed focuses more on Core PCE (due at the end of the month) – this remains a concern. Here’s the thing: non-core inflation continues to hurt real America. Take small business – their confidence is now at 2012 lows. Their primary concern: inflation and higher input costs.
For a full list of posts from 2017…