Weekend Reading: Did The Grinch Steal The Christmas Rally?

On Tuesday, we put on a small S&P 500 trading position for an oversold bounce. At first, it didn’t work and we were almost stopped out, but a late day rally kept us in the position.

Wednesday was a different picture as stocks rocketed out of the gate on more “trade talk” news with China, but that rally faded as well heading into late day as the owner of the “National Enquirer” was granted immunity in exchange for details on another Trump-related “hush money” payment.

Yesterday, the markets struggled out of the gate as economic data pointed to slowing rates of inflationary pressure and economic growth, fell into negative territory, and then ended the day flat.

This morning stocks opened down as concerns of global economic weakness rose from China.

So far, the “Santa Rally” has failed to appear and traders are beginning to wonder if they are on the “Naughty List”this year? With all of the rhetoric over trade, White House shenanigans, and weak economic data, it certainly would seem to be the case.

But, it may actually be more of the “Grinch (aka The Fed) That Stole Christmas” this year.

While the Fed’s rate hikes do indeed raise borrowing costs and slow economic growth, it is the extraction of liquidity from the markets which is most important. As shown in the chart below, the Fed is now reducing their flows by $50 billion each month. This is in direct contrast to the billions they were injecting previously which corresponds with the markets decade-long bull market despite weak revenue growth due to a sluggish economic expansion.

But it is no longer just the Fed. On Thursday, the European Central Bank made two important announcements.

  1. They will stop adding to its stock of government and corporate bonds at the end of December, and;
  2. They are seeing signs of weaker inflation and economic growth.
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Disclosure: The information contained in this article should not be construed as financial or investment advice on any subject matter. Real Investment Advice is expressly disclaims all liability ...

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