January 13, 2019 Fed Speak

Risk/Reward Vol. 405

THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.

Despite a flat close on Friday, the year to date has been very good for Mr. Market. The Dow is up over 2.8%. The S&P is up over 3.5% and the NASDAQ is doing even better. Part of the impetus upward undoubtedly arises from improved prospects for a deal with China, but clearly the major stimulus has been indications from the Federal Reserve and its individual board members that the Fed will tread lightly in 2019 when it comes to raising interest rates. Mr. Market turned bullish on Thursday when the Fed's December minutes were released. Therein, the Fed stated that with inflation posing little threat, it could afford to be patient with rate increases. Moreover, given the upheaval in the market experienced as 2018 closed, the Fed admitted that its path for normalizing rates was less clear than it had been in October.

As it now stands, the Fed futures are predicting NO interest rate hikes at all in 2019. Thus those investors counting on higher rates in the coming months (read, me) may be disappointed. As a consequence it is not surprising that money flows have weighed heavily on the equity side these past several days. That said, it is hard for me to conclude that there will be no rate hikes given that the dot plot issued on the same day that the December Fed meeting was held showed a consensus of two rate hikes in 2019. Huh? Maybe the Fed should just hold its tongue and let its actions speak.

Even if rates do not increase, it is difficult for me to see how the stock market is going to provide much of a return this year. Led by Apple, 72 of the S&P 500 companies issued earnings warnings, twice as may as have issued positive guidance. And then there is the matter of The Donald and his enemies in the House of Representatives. God only knows where that will lead. Time will tell. Both the Dow and the S&P sit 6.5% lower than they did last year at this time which indicates to me that despite a good couple of weeks, winter is upon us