Fed Playing A Dangerous Game

Yellow flags are waving in numerous corners of the market regarding global central banks. As illustrated recently with the three legs of the stool story, monetary policy is not immune to the law of diminishing returns. From The Wall Street Journal:

Central bankers are playing a dangerous game, and they are running out of time to score the winning points, Janus Capital Bill Gross says in his latest investment piece… Negative rates fundamentally alter the capital markets, and the central banks have a limited amount of time to employ them, and get some success out of the adventure, before the markets start tanking.

Bloomberg ran a story with a similar bent on March 29:

A torrent of monetary stimulus in recent weeks helped spark a turnaround in financial markets by assuaging investors’ fears of an impending global downturn. Yet it did little to lift hopes among economists of a stronger pickup that would put growth on a more solid footing. The concern is that policy makers are mainly putting off the pain for now while adding to the difficulties they’ll face later. What’s more, the meager growth they’ve generated means a downside shock still threatens to sink the world into recession, with central bankers already pressing against the limits of their powers.

Central Banks Always Part Of Investment Equation

The Fed and other global central banks have always played a major role in the markets. What has changed over the past two years or so is:

(a) The frequency of intervention.
(b) The magnitude of the intervention.

Employment Report Coming Friday

As expected, our market model has started to see improvement at a more rapid pace now that the S&P 500 is floating around 2060. With a monthly labor report still on this week’s agenda, it remains to be seen if the improvement will carry into the weekend. The bulls still control the tape; however, the hurdles may become more difficult with earnings season rapidly approaching.