May Issue of INSIIDE Track Newsletter Sent Out

Equity markets remain in what is expected to be a multi-year (wide) trading range, experiencing a series of multi-month rallies and multi-month declines while confined to the same range. A decline in Aug./Sept. 2019 is expected…The stock market has rallied throughout 2019, encouraged by the expectations of lower interest rates. Immediately prior to that, In late-Dec. ‘18, equities completed a ~3-month nosedive – culminating on a fourth interest rate hike AND the perception that 2 – 3 more rate hikes were coming in 2019.

It is now, with 20/20 hindsight, easy to see that late-2018 expectation was very mistaken.

It took a little while (and a barrage of nasty Tweets directed at Jerome Powell) for that perception to shift – first to ‘no more rate hikes in 2019’ and then eventually to ‘perhaps a rate cut in 2019’ and finally to ‘2 – 3 rate cuts in 2019’.

Long before economists were perceiving this, the market was already anticipating it, rallying (along with Bonds) since late-Dec. – already pricing in this 180-degree shift in sentiment… and ultimately in action. This time, with economists predicting the opposite of what they were in late-2018/early-2019, there are at least two considerations that could begin to shift market direction – on a short-to-intermediate-term basis.

The first is the obvious – Fed-watchers could be wrong. This rate cut might be a ‘one-off’ that leads to a prolonged period of stagnant, wait-and-see inaction from the Fed. Earlier in July, there were growing expectations that this rate cut would be .50 basis point. It came in at .25… with two Fed governors dissenting. Part of that was due to some better than expected data in the interim.

With that in mind, the obvious conclusion is that the economy would have to get worse to justify another cut. And that is where the second consideration emerges. One of the rationales given for this interest rate move was to ‘anticipate trouble ahead’ and not wait for it to happen. While that might be a breath of fresh air from a historically reactive institution like the Fed, it creates a ‘Catch-22’ for stocks…

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