Market Overview

While 'Baby Bears' Are Hibernating, Some Think Goldilocks Growth Phase Is Next

While 'Baby Bears' Are Hibernating, Some Think Goldilocks Growth Phase Is Next

Federal Reserve Chairman Jerome Powell said the word "patient" in some form eight times last week, but the tone of his speech is not far different from prior Fed bosses, according to CNBC's Michael Santoli.

What Happened

Former Fed Chair Janet Yellen said in December 2015 that the institution will "proceed cautiously in adjusting policy," while Alan Greenspan said in 1995 that a complex business cycle is underway "whose outcome is yet to be determined," Santoli said.

This language dates back more than three decades and four Fed chiefs, during which six sharp market downturns were "driven by a growth scare," according to CNBC. 

In other words, stocks experienced a "non-recession market crash" on multiple occasions, with 2018 being the most recent example, according to Santoli, who quoted Canaccord Genuity strategist Tony Dwyer. Encouragingly, what follows these market downturns is a longer-term recovery, he said. 

Why It's Important

If history is any indicator, the "baby bear markets" of 2018 are nothing but a "false recession alarm" and will usher in a "Goldilocks growth phase," Santoli wrote.

Several key conditions need to be followed, in the view of Canaccord's Dwyer.

The Federal Reserve needs to stop making "policy and communication mistakes," the U.S. government needs to resolve its trade dispute with China and the yield curve needs to remain positive, the analyst said. 

What's Next

The problem with looking at past history as any sort of indicator of future events is that much can change quickly.

"Friday's strong employment report already raises questions of whether the Powell Fed will find cause to stay patient for long before restarting its rate 'normalization' efforts," Santoli wrote. 

"So, for investors still shaken by the December descent that has not even fully been undone by the recent 15-percent S&P 500 rally, history can provide some comfort and food for thought — but offers no guarantees." 

Related Links:

Fed Chair Powell: 'We Will Be Patient'

Presidents Vs. The Fed: We've Been Here Before

Posted-In: CNBC Interest Rates Jerome Powell Michael Santoli Tony DwyerFutures Markets Media Best of Benzinga


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