11/30/2018 – A positive week with the Dow Jones up 1,253 points (+5.15%) and the Nasdaq up 392 points (+5.65%)
The stock market finds itself at an incredibly important juncture. Things are about to accelerate in an unexpected way. If you would like to find out what happens next, based on our timing and mathematical work, in both price and time, please Click Here.
President Trump finally got his wish and the so called “Powell Put” is now in place. At least according to most investors out there today. Yet, a much more important piece of advice from the FED was completely ignored. Let’s take a look…….
Federal Reserve Warns of ‘Particularly Large’ Market Drop
The Federal Reserve, in its first-ever financial stability report, warned of several risks to financial stability Wednesday that it said could result in a “particularly large” drop in stock prices.
Pointing to issues including ongoing trade tensions, rising corporate debt from companies that have weak balance sheets and rising geopolitical uncertainty, the Fed said investors could become more risk averse, which could have severely negative consequences for the market.
“An escalation in trade tensions, geopolitical uncertainty, or other adverse shocks could lead to a decline in investor appetite for risks in general,” the lengthy report read. “The resulting drop in asset prices might be particularly large, given that valuations appear elevated relative to historical levels.”
Should those asset prices plunge, the Fed continued, that could make it hard for businesses to obtain funding, which would put additional pressures on them. (Banking, it noted, was excluded from that warning, as the sector is “resilient,” thanks to high levels of capital and liquidity).
It also warned that its own actions could cause some investor malaise.
“Even if central bank policies are fully anticipated by the public, some adjustments could occur abruptly, contributing to volatility in domestic and international financial markets and strains in institutions,” it wrote.
In other words, we are in a massive and unsustainable bubble that will eventually collapse due a number of possible outside forces and/or the FED’s own interest rate hikes.
So, how do we reconcile these two completely opposite interpretation of the subject matter coming out of the FED?
We have to take a somewhat longer-term point of view. Let’s assume the FED does pause interest rate hikes and even cuts. Does that change the fundamental backdrop of stocks selling at the highest valuation level in history, “The Everything Bubble”, and the fact that earnings have peaked? That is in addition to a massive amount of capital being drained out of the market.
NO, not by a long shot.
Throw in massive amounts of debt everywhere, Trump’s idiotic economic/tax policies and trade wars and we have a very serious situation. That is to say, structural imbalances plaguing today’s economy and capital markets are getting worse by the day, Powell’s Put or not.
The above analysis is somewhat worthless when it comes to predicting what the stock market will do both short-term and long-term. If you would like to know that, in both price and time, based on our timing and mathematical work, please Click Here.
