1. Moving the markets

Even poor economic data points such as Ford announcing 25k job cuts, or subprime auto loan issuance soaring, could not derail the no-deal Trump and Xi announcement from the G-20 meeting. The agreement to hold off with any major changes resembled a temporary truce and nothing else. The US agreed to keep the current 10% tariffs for another 3 months in return for China’s promise to purchase a greater amount of American goods.

That was enough for the computer algos to shift into overdrive and push the major indexes higher on a nothing-burger deal that could unravel just as quickly. Said more crudely, it could turn out to be a dump-and-pump scheme.

Be that as it may, for right now the bulls are in charge, and our Domestic Trend Tracking Index (TTI) jumped back above its long-term trend line and into bullish territory by +0.68%. I am always very suspicious of these sudden moves up, or down, and will therefore play it cautiously, since sudden up-moves tend to be of an ephemeral nature and often based on exuberance.

That means, I will watch for a few days to see if these current levels can be sustained or improved upon before issuing a new “Buy” signal for “broadly diversified domestic equity ETFs.” This approach will hopefully contribute to avoid another whip-saw signal. I also plan to allocate only a portion of clients’ asset into the low volatility spectrum.

Stay tuned!

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1. Moving the markets

The November Fed minutes revealed that a rate hike was on the horizon, but the path from then on forward was uncertain and that “monetary policy in 2019 was not on a pre-set course.” Additionally, it was made clear that the expectation of 3 hikes was “flexible” and could change, if the economic picture shifted dramatically.

Nothing new there, but the markets took it as less uncertainty than we had prior to yesterday’s announcement, and see-sawed around the unchanged line all day before closing slightly in the red.

Still, the indexes have now recovered to where they are hovering at critical levels with their key moving averages. That simply means that these levels could serve as resistance points or, if broken solidly, as a base for new advances and a break back into bullish territory.

Headline news will likely make that decision, as words like G-20, Fed, Trump and Trade are the ones that will affect market direction soon. Interest rates took a dive with the 10-year bond yield dropping below the 3% level for the first time since the middle of September, before rallying off that point to close at 3.03%. That is an amazing collapse in yields when considering that earlier this month we were at 3.24%.

This makes me wonder if economic conditions are as solid as advertised, because if they were, yields would continue to rise and not drop. Consider, we have a plunge in pending home sales to the weakest in 5 years, jobless claims soaring to 8-month highs, while some car manufacturers are closing plants and laying off workers. These are signs of weakening conditions that may need an assist from the Fed in form of lower rates. Is that why the Fed showed a softer “dovish” side yesterday?

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1. Moving the markets

Today, only one topic mattered and that was what Fed chief had to say about interest rates. His comment that they are “just below where they won’t stimulate the economy” was enough to get the buying spree going with the major indexes scoring solidly, as the chart above shows.

The Wall Street crowd interpreted this not only as a softening tone (dovish) regarding future rate hikes but also that we may be close to the “neutral” rate, a level where its alleged effect on economic growth would be neither positive nor negative. These words appear to be a turnaround from comments made in October, when Powell opined that the “central bank may go past neutral, but we’re a long way from neutral at this point, probably.”

That indeed appears to be a change of heart, still, Powell did not mention anything about the expected rate hike at their next meeting in December. Some analysts argued that Powell was not as dovish as was interpreted, as he did not mention any expectations for slower growth or weaker inflation.

In the end, the US Dollar dumped on Powell’s apparent flip flop, but caution is warranted, as one analyst noted:

“The markets are overreacting to what Powell said, perhaps partly because some of the newswire headlines don’t quite accurately convey the nuance of what he said…”

With today’s advance, the S&P has now wiped out its huge Thanksgiving week losses, but it’s too early to tell if this is just one big head fake, especially with China’s trade negotiations on deck in a few days. Again, if these turn out to be positive, our Domestic TTI (section 3) may very well be pushed to the bullish side of its trend line getting us back in the market.

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