Here’s the news of the week – and how we see it here at McAlvany Wealth Management:

The Fed Spoke and Stocks Choked

Stocks would normally have launched into the stratosphere following decidedly dovish pronouncements by the Fed, but that’s not what happened after Wednesday’s FOMC policy meeting. In that meeting, the Fed chair put a halt on rate hikes until 2020 (and may not resume them then), set a termination schedule for QT for this September, and lowered GDP growth by 0.2% to 2.1% and inflation by 0.1% to 1.8%. 

Stocks were fairly volatile immediately following the announcement, but ultimately the major indices began to do the unthinkable and tapered off into the red, ex-the NASDAQ that finished with a small gain (thanks to Apple hype). Exactly what traders were fearful of is still somewhat of a mystery, since there wasn’t much to go on in the headlines. I believe it had something to do with the narrowing and/or inverting across parts of the yield curve (i.e., term premiums) and subsequent negative adjustments to the bank stock index. All of this occurred shortly after the FOMC meeting and Mario Draghi’s not-so-publicized warning in regards to bank profits. To put it simply, the yield curve isn’t cooperating (globally) as it pertains to stimulus. If it remains flat at any given rate scale, then the risks in lending remain elevated. So the logic goes.

Away from stocks, Treasuries advanced in a somewhat mad rush to quality – again, this didn’t prevent the curve from flattening. The dollar traded all over the place following the Fed developments, but a very weak British pound, thanks to another Brexit delay (till April 12 th ), was enough to tip the dollar back above its moving averages – at least for the moment. This held the metals to small gains for the week, as gold added 0.85% to silver’s 0.97%. Oil led the energy and energy shares lower, adjusting for the Fed’s reluctant confessions regarding the economy (see the scores).

Next week, we’re going to see what kind of resolve Wall Street really has in this environment. If the action Friday is any indication of what lies ahead, we could see trading action that rivals what we saw last December. And now that the US economy is “officially” falling in line with already depressed global levels, the dollar may not be as strong in the near term – which should push the metals back near and perhaps beyond interim highs.

Best Regards,
David Burgess
VP Investment Management