Fed Chairman delivered dovish commentary in front of Congress – and the market went up. If you want to simplify the week that was what it was all about. At some point something other than the Federal Reserve is going to ease will matter but it hasn’t for a few weeks now, and until then – that is really all the market cares about. Keep in mind other central banks are joining the party and investors have been trained to get out of the way of betting against the central bankers.
Stocks broadly rallied Wednesday after the publication of Powell’s remarks before the House Financial Services Committed in which the Fed Chairman emphasized rising risks to the U.S. economy from trade policy and slowing global growth, as well as falling price inflation. Powell noted that while the U.S. jobs market remains robust and consumer spending appears set to rebound, business investment has slowed considerably, along with housing investment and manufacturing output.
“Our baseline outlook is for economic growth to remain solid, labor markets to stay strong, and inflation to move back up over time to the Committee’s 2 percent objective,” Powell said in prepared remarks. “However, uncertainties about the outlook have increased in recent months. In particular, economic momentum appears to have slowed in some major foreign economies, and that weakness could affect the U.S. economy.”
The Fed, for its part, is prepared to “act as appropriate to sustain the expansion,” Powell reiterated, using a phrase that economists say points strongly to a rate cut at the bank’s next meeting at the end of July.
“A rate cut in July is now all but certain,” Aberdeen Standard Investments senior global economist, James McCann, wrote.
Economic news was sparse.
This via Bespoke:
The third year of US Presidential election cycles (that is, the calendar year before the election year) tends to be the best time of the four-year presidential cycle to own US equities. Since 1928, years before Presidential elections have delivered a price return of more than 12% on average, versus an average return of 5.7% for all other years. As shown below, the current year is definitely the sweet spot for equities, though election years also tend to show above average returns.