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The Federal Reserve is Now Front-and-Center

CAMS Weekly View from the Corner – Week ending 6/21/2019

June 24, 2019

The stock market is at a crucial juncture when looked at through the lens of its own behavior in the last two years.

The very smart bond market is simultaneously offering solid and consistent economic growth going forward is anything but a certainty and is beginning to get louder in its message that the Federal Reserve needs to lower interest rates on their end of the spectrum.

As an aside, don’t count on that coming imminently which brings the central observation back to the stock market and whether it will be able to hold itself together while seeing said bond market is offering a weaker economy is coming.

 Since early May our Weekly Views have been focused on the message of the markets.  The epicenter of this focus has been the bond market via the 10 Year Treasury bond message.  Second to this bond market focus has been the general behavior of the stock market in the last two years.  Specifically, it hasn’t been able to trend upward but rather has remained stuck in a very large range.

The intro above of this edition is an excerpt from a Weekly View a couple of weeks past.  It succinctly states the general observation of the last several weeks and walks us right into what has taken place in the previous few days.

Specifically, the Federal Reserve has either heeded the market message or has begun to look at the various issues that have the bond market seeing that the economy is weakening.

This past Wednesday, the Federal Reserve via its Federal Open Market Committee meeting press release and ensuing press conference with Chairman Powell informed us that the Committee is more open to being “accommodative” (FED-speak for cutting short term interest rates) as they look towards near-term meetings.

While the Committee did not lower short term interest rates on Wednesday their forward looking accommodation language notably impacted all markets.  The bond market pushed the 10 Year Treasury Interest Rate even lower while the S&P 500 finally pushed above our “black line” focus of previous Weekly Views.

$SPX - 6.24.19

Click For Larger View:

As depicted in the chart above we can see the spike higher the S&P 500 experienced in response to the Fed’s announcement.

Our central observation remains in that will this be able to trend upward?  The chart reflects that the stock market has yet again attained its previous high water mark on the heels of the announcement.

With this announcement clearly front-and-center for market participants via their positive reaction to the expectation of lower short term interest rates we curiously ask if near-term economic releases will be reacted to inversely.

That is, will weaker than expected economic reports be viewed as “good” – meaning a higher chance of the Fed following through with interest rate reductions – and stronger than expected economic reports be viewed as “bad” whereby there is a lower chance of the Fed cutting said interest rate.

If this unfolds we could be looking at a more volatile stock market experience than most are expecting as the ebb and flow of economic releases hit the newswires.

Watching the black line above remains a central focus for the next few weeks.  This time, said black line should not be challenged again if all is right with the stock market as a whole.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio


H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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