Market Briefing For Friday, Aug. 23

Dovish expectations are increasingly being tempered by a few others joining our view that the last Fed cut was likely to occur; but not essential. The negative yield trend in Europe should emphasize the inability (at least nominal at best) of lower rates in an already low environment ineffective.  

While we have contended a sort of sluggish stagnation prevails, we have at the same time argued against more than corrections; and even allowed that the S&P might well make it into new high territory if a few things go right. At the same time, I do not embrace the frenetic (almost like panic) calls just a few analysts have called for in the near-term; but I am open for rally failures; given the sensitivity to a lot of things.  

Heading that list is the 'shuffle' from inverted to stabilizing yield curves, and how it creates a rolling debate (literally hour-to-hour) about recession or not. As you know, I believe the nuances of recession have been around for over a year; and that the official proclamation would be near the end (providing a couple worst-case global scenarios don't occur).  

Hence, 'if' we are so lucky (for entry of new monies) to evolve into a serious 'clocking' of the market into Fall's often-precarious time, it may become an attractive place to enter. The economic expectations are mixed depending which Fed-head or economist is speaking at Jackson Hole; while most now talk about 'risk to the downside' and less robust activity; which I believe just finally acknowledges what's been evolving since Spring of 2018; not merely this year. This is not about the President's tweets suggesting that U.S. rates should 'catch-down' with those of Germany for-instance; and we doubt that would help the U.S.; while rates here in Europe really need to reflect upon a series of reasons 'why' such desperate lowering efforts aren't working.  

  

So the suppression here is more focused on the global impacts; a factor that won't really be helped by a U.S. Fed cutting rates; and notably its not clearly conveyed by the Fed Presidents that 'us' catching-down with yet another series of cuts, likely won't be relevant; whereas their recovery would.  

Of course given the tensions in Asia, one can also argue the outcome going either way; in terms of oppressive actions by Beijing; but also prospects of a trade deal. But for the moment the focus is more on domestic pressures; not China; but it is out there and the Hong Kong shift from protests to 'possibly' revolutions, may have wide ramifications should that expand.

  

In sum: several of the regional Fed Presidents expressed reluctance to see yet-another rate cut in September, while remaining flexible (data dependent is what that means). Cutting rates promotes 'risk-taking' and that seriously is a concern in the bond markets; and all those championing us aggressively chasing the actions of more-depressed countries cutting yields into negative territory, should reflect soberly on how that was counterproductive for them, and would create more prospects of problems here, rather than just stabilize economic activity and perhaps allow the normal transition to growth to return conceivably during the 2020-2021 year; fueled by emerging from transition in technology, and perhaps much-needed USMCA ratification (and China).  

I also point out that with yields so low, a lot of already-corrected US stocks, meandering for the most part, have pretty significant dividend floors; which also argues against significant decline among those that can hold dividends and perhaps even benefit from the next period of expansion.  

Bottom-line: dangers do loom; but do not have to crystallize in the worst or deepest kind of market dives looking ahead. There is some temptation for traders to 'swing' a bit at the moment; generally as the yield curve swings.