A Little Perspective for All the Bearishness



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Thursday, December 20, 2018

To paraphrase this column from yesterday, “The Fed raising interest rates another quarter point may not represent Santa Claus, but at least it’s not Krampus.” The market saw this rate hike yesterday and begged to differ… Another big down-leg – from 1.5% to over 2% in the major U.S. indexes – sent stocks spiraling downward yet again in Wednesday’s session.

Congratulations, stock market – you’re officially having the worst year since 2008, when the Great Recession commenced. The S&P 500 is at a 15-month low, with 60% of its stocks in bear territory, and 9 of 11 sectors trading at correction levels. Pre-market futures look down again at this moment, albeit less drastically than we’ve become accustomed to.

Fed Chair Jerome Powell took to the podium following the Fed’s decision to bring the Fed funds rate up to a 2.25-2.50% range yesterday, mentioning the committee is eyeballing two further rate hikes in 2019. This was offset – or at least attempted to be offset – by Powell suggesting the Fed will continue to be data-dependent: if economic metrics slag on global market weakness and the U.S.-China trade war into next year, the committee may opt to not raise rates at all.

Anybody following this stuff already knew 3% was what the Fed had been looking at to keep its dual mandate – “full” employment and a buffer on inflation – in line. Yesterday’s move brought us 50 basis points below this figure, and yet market participants decided it was time to howl in pain nevertheless. Apparently, the question marks surrounding the aforementioned trade war was supposed to have warranted the Fed to stay pat at 2.00-2.25%. If this sounds a tad petty, that’s because it is.

That said, everything is down this morning: oil prices have dipped below previous comfort levels of $50/barrel on the WTI (now $46.70) and $60/barrel Brent crude (now $55.70). The 10-year t-bill is not only beneath a yield of 2.8%, it’s currently below 2.77%. The dollar index is down today, as well. Commodities are down. And yet the Fed somehow sees everything is rosy? Dig the indignation.

About the only thing up ahead of the opening bell today is Initial Jobless Claims : +8000 week over week to a headline of 214K new claims. This keeps within the very strong range of 200-225K claims per week that are consistent with near-50-year lows, when our economy was much smaller and less complex. Continuing Claims of 1.688 million, up from 1.66 million in the week-ago tally, are also in n historically robust range. No worries on the jobs front, as these numbers prove every Thursday going back many, many Thursdays.

What we should be looking at is the future: value plays may become more apparent the longer this market tantrum continues. There are plenty companies killing it in their earnings reports quarter after quarter, and look to continue their stretches into 2019. We can choose to look at this week’s sell-off as the end of the world, but we know it isn’t. Time to position your portfolio accordingly.

Mark Vickery

Senior Editor

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