WASHINGTON. Today’s column finds us in a tepid frame of mind. Mr. Market has traded sideways for the last couple of weeks at least. Yet his bias remains modestly positive, leading to a couple of additional records in the major averages. Investors seem hesitant, but want to keep investing. Hence, the slightly upward drift on generally low volume. Investors await clarity, it seems, on interest rates and China trade issues. Updates may be forthcoming. Or not.
Another “Waiting for Godot” Wall Street Week?
So we continue to drift. The Fed is likely to remain mushy and indefinite on the direction of interest rates for now, keeping that question up in the air. But the perpetually alleged China trade issue could pop up and get resolved at any moment, potentially leading to a sharp market rally. Or not. But we won’t hold our breath. All in all, this over all lack of day-to-day excitement (or resolution) recalls our longstanding market metaphor for such intervals: “Waiting for Godot.” Which makes it hard to pop off interesting columns. Sorry. But we’ll try again.
Emotional extremes like irrational exuberance or investor blood running in the streets (Warren Buffett’s metaphor for really bad times) add pep to any financial column’s step. But sideways market meandering does not. Right now, we’re enduring what analysts call a “tight trading range.” Which simply means that Wall Street is really boring again Monday morning.
Interest rates plus bond ghouls and vigilantes
As always, bond ghouls and vigilantes kept their collective eyes on that all-important 10-year US treasury bond yield last week. The 10-year interest yield hovered last week between 2.5 and 2.59 percent, closing around the low water mark of that range. This was relatively remarkable, considering that the nation’s Q1 GDP figure, reported Friday, came in at a better-than-expected 3.2 percent. That higher-than-expected number may indicate that the Fed’s sudden rethinking of its ruthless interest rate boosting regime likely occurred just in the knick of time to prevent a nasty recession this year.
Nonetheless, some tension remains here. The Fed continues its dumping of bonds it acquired post-Great Recession during its period of quantitative easing, aka, QE. Thus, the Fed’s balance sheet assets dropped by roughly $3 billion last week. That’s still a form of “tightening,” but Mr. Market seems to tolerate this tactic a bit better than those interest rate hikes.
The Fed earlier claimed it will terminate this phase of the bond runoff, perhaps around September. But if the economy remains strong, they might keep selling inventory. That alone could keep a lid on inflation without interest rate hikes. But nobody knows.
Like everything else the nation’s central bank has done since roughly 2008, we probably won’t know how all this stuff really worked out until we look back on it, say, in 2040. That’s assuming that we don’t get a President Ocasio-Cortez before then.
Anyhow, Mr. Market remains in a cautious Goldilocks mood right now. He’s happy to creep upward on low volume. But he’s still suspicious enough to hit the exit ramp at a moment’s notice if things look like they’re going South.
The Do-Nothing Democrat House obsesses on impeachment fever dreams
Aside from trade and interest rate issues, the other wildcard remains the Democrat-run, do-nothing House of Representatives. Oh, sure, the Democrat leadership is doing something. That being its relentless pursuit of any tiny morsel of information that might lead to tangible impeachment hearings leading to the hoped-for ouster of President Trump. Or at least contributing toward an atmosphere that would lead to his defeat in Election 2020.
But again, as far as contributing anything meaningful on the legislative front – aside from passing asinine socialist schemes that will never get through the Senate – nothing realistic is on the table. Except all those pre-impeachment investigations. It’s shameful. And America’s taxpayers ought to throw these bums out in 2020.
The unfortunately Democrat-led House is wasting a colossal amount of money as they continue their never-ending temper tantrum against any and all GOP Presidents, whom they regard as universally illegitimate. It’s a practice that’s been going on ever since they managed to push Dick Nixon out of office.
China trade issues to surface again this week
Worse, during the current administration, we’d argue here that the Democrats’ perpetual impeachment obsession is making it tough for the current administration to deal with this country’s ongoing US / China trade issues. As in getting the ongoing US-China trade negotiations done. Soon.
Communist regimes have historically stalled when negotiating long-lasting agreements with this country if they think US regime-change is coming soon. The problem is, if the Chinese seriously believe the unadulterated crap reported by the lamestream media, they have every reason to drag these negotiations out and await a more pliant US president. As in another Socialist Democrat like Barry Obama in 2021. Who could blame them, when their enemy is doing their dirty work for them?
On the other hand, all the tariffs flying around arguably make it tougher on the Chinese than on the US, so there is some motivation for the Chi-coms to get things done. It’s a push-pull situation at the moment. And when it comes to dealing with our ongoing China trade issues, Congress isn’t helping one whit. It’s yet another crosscurrent that Mr. Market must parse out before he decides which way to go next month.
May Day! May Day!
Just to make things fun, next month, which begins on the Communists’ favorite holiday, May Day, begins this Wednesday. That could put China trade issues on hold again, at least for a couple of days, during which the world’s Marxist movements celebrate another consecutive year of Communist and Socialist failures.
As for those of us who are almost fully invested, however, we’re always reminded of that old market averages,
“Sell in May and go away.”
With some frequency, it gets tough for bulls to make money in the summer months for a variety of reasons. Hence, that old cliché. Last year, it didn’t pan out, as markets stayed pretty happy. Until they decided to go belly up last fall, a season during which they generally do just the opposite.
You never know. It’s always something.
But as May approaches, we plan to put on our worried faces. We’d hate to get our portfolios eviscerated once again after having endured an interminable Maalox Moment in Q4 2018. Stay tuned.
— Headline image: Markets are still “Waiting for Godot,” just like Ian McKellen and Patrick Stewart are waiting for him here. (Image via Wikipedia entry on “Waiting for Godot”)