Hey folks, I hope you are enjoying this nice Labor Day Holiday Weekend for the US Markets. I am trapped over in Europe winding down a seminar series and trying to fly back to Miami but having some difficulty with Hurricane Dorian playing an active role in flight schedules. So while I am here, I wanted to get out this short Holiday Update on the Markets for you. Enjoy!
• As we kick off the month of September we can see the S&P 500 has produced annualized returns of -5.51% during this month going all the back to 1950. On the surface, that’s a significant problem, as we’re about to embark on the only calendar month of the year that has fallen more often than it’s risen over the past 7 decades.
• Septembers during secular bear markets (1969-1981 and 2000-2012) have produced annualized returns of -13.82%. Meanwhile, Septembers during secular bull markets have produced annualized returns of -0.35%. I certainly wouldn’t do cartwheels after looking at that last number, but flat is a much different picture than big losses. No matter how we slice it, though, September is not a great month and presents a hurdle for those like me in the bullish camp.
• We have already seen the market aftermath of Hurricane (Fed Chief) Powell on three occasions in the past 9 months. I don’t know if we can take another direct hit. While most media folks are pitting Fed Chief Powell against President Trump, I believe it’s more Fed Chief Powell vs. the BOND MARKET. The bond market sends us signals all the time. It’s a very smart market, much smarter than the stock market in my view. The signals here have been very clear since Q4 2018.
• While yields have tumbled from 3.25% to 1.50%, the Fed has moved from a rate-hiking campaign to finally agreeing to lower the fed funds rate a quarter basis point. But the bond market wants a lot more – and the Fed needs to lower rates further.
• “Why should the Fed lower rates if our economy is strong?” If inflation was at or above the Fed’s target level, normally the Fed should stand pat. But here’s the problem. Central bankers are dovish everywhere around the globe. Standing pat here strengthens the dollar, which, in turn, weakens commodity prices.
• The Fed’s mandate is to maximize employment and to stabilize prices. Because the threat of disinflation remains high with a strong currency, the Fed has the opportunity and the ability to lower rates – and the bond market is SCREAMING for it!
• I blame the Fed for the inverted yield curve. Lowering shorter-term rates would immediately correct that inversion or potential inversion.
Enjoy this week’s Weekly Round-Up;
Don’t Be a Rat Brain Trader – Be the Red Stripe Zebra !!
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