Markets Look to Stabilize
The pessimistic narrative on the Fed and China that drove the market to new lows a couple weeks back has changed to a more optimistic tone. This new tone has created a sharp bounce from the lows we witnessed on December 26th.
It has become clear that headlines and emotion are currently driving market action. This is something we discussed last week in our Quarterly Commentary.
There are two primary factors that have concerned investors and shaped the narrative and market direction.
- The Federal reserve and monetary policy (interest rates)
- China U.S trade relations.
Up until the last couple of weeks, Chairman Powell and the Federal Reserve had been very hawkish on interest rates. They appeared to be on a preset course to raise rates regardless of the environment. In public communications from the Fed, there appeared to be a disconnect between the economy the Fed was watching and what the market believed we were headed towards. In the past few days we have seen a change; the Fed has taken much more of a “wait and see” approach in their communication regarding interest rates. This is more in line with the consensus view and has inspired investors who now believe the Fed will be more patient with any further rate hikes.
Recent China trade news has also been quite optimistic. President Trump went so far as to say that he wanted to get a deal done with China to “boost up the markets”. As we have mentioned before, until we are able to get more certainty on these two issues, we expect to see more volatility. The news that drives markets in one direction can change on a dime and move them in the opposite direction rapidly. It seems crazy, but it clearly is rhetoric and sentiment that is driving markets at this point. Markets in the long run are relatively rational and price things where they should be. In the short run, they are extremely irrational and driven by emotion. In moments like this we can watch that clearly play out “tweet” by “tweet”. During this period, we will focus on the factors we control and the ones which impact long-term investment results. We will also look to capitalize on the short-term emotions of markets to benefit our long-term investors.
CNBC called on Robert Wednesday regarding these two issues. Click Here for a brief clip from that appearance.