Market Overview

Wednesday's Market Minute: One Giant Hurdle To A Fed Cut

Wednesday's Market Minute: One Giant Hurdle To A Fed Cut

Since the start of the year, markets have moved back into “Everything Rally” mode. Stocks, bonds of all colors, gold, bitcoin – it's all up, and it's all predicated on easy central bank monetary policy. That's the story at least. The spread of coronavirus and expected subsequent economic impact has investors once again expecting the Fed to lower rates.

The bond market is pricing in slightly more than one rate cut by year-end, with the first as soon as June. Apple Inc's (NASDAQ: AAPL) warning yesterday sent the probability of a move in June to above 60%. While U.S. economic data is the best it's been in two years, investors are once again pointing abroad for the impetus to lower rates. Europe’s bounce-back has reversed and China is expected to hit a wall for at least a quarter. In the mind of dovish investors, it looks like a similar setup to 2019’s epic Fed pivot. But there’s one big thing standing the way of Mr. Market’s dream scenario: the stock market.

Unlike the 20% rout that shattered the S&P 500 in late 2018, stocks have been zooming forward for more than a year. Iranian assassinations, Saudi oil strikes, and so far, a deadly viral outbreak have not been enough to get in the way of investor enthusiasm for U.S. stocks. Combine better-than-expected earnings and an outlook for 10%-12% growth with a renewed enthusiasm by investors for high-beta, high-momentum stocks, and the stock rally looks like it still has legs.

If the melt-up that began after the S&P 500 broke 3,000 has enough juice to get through the global economic gully carved out by Coronavirus, don’t expect Jay Powell and team to be quite as eager to run to the market’s rescue this time.

Image by Pexels from Pixabay


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