And just like that, Jerome Powell saves the day. This time around, the Fed chairman’s remarks were less hawkish and more reassuring, which probably had a lot to do with yesterday’s massive sell-off. Everything in DC is a power play, specially when it comes to Fed stimulus, and keeping rates low is an absolute must for Wall Street. Powell does not work for POTUS. He works for Wall Street and guys like Jamie Dimon. TARP and nearly ten years of QE should have made that clear to everyone in America, so stop questioning who is in charge of this casino and place your bets accordingly.
But this probably won’t be enough to quell bearish sentiment because there are other variables to consider, such as an ailing Chinese economy and trade hostilities. Tariff Man is also threatening to prolonged the partial government shutdown for “months or even years” if necessary. How could this be good for the market?
The reasonable thing to do here is to wait and see what happens next week, keeping in mind that the only thing that matters to investors is growth. Economic growth and corporate earnings. Stock prices fall when they anticipate credit issues and slow growth because markets are forward looking and move according to future expectations. This is why stocks were getting hammered despite good economic data. When the market sees all the corporate debt piling up things start looking a bit scary and that’s where we are now. How the Fed navigates through this will determine what happens in 2019 and beyond.