Jerome Powell

A Volatility Spike!

Posted on by George Mahfouz

A volatility spike in November spooked plenty of investors which sent the markets into a tailspin! Volatility (see chart here) woke up last month as the markets digested the constant news flow and fears of an A.I. bubble (click here). This fear also spilt over into the crypto space where we saw Bitcoin, Ethereum and other Altcoins crash as much as 35% last month. For crypto, this is not an unusual drawdown, many times over a 30 plus percent correction has occurred in this sector. What’s different this time was the fear mongering over an A.I. bubble which has been a daily occurrence. This dynamic sent the tech sector down as a whole while also dragging crypto coins and crypto related stocks with it.

What was good to see for the bulls last week was the rally that occurred during the Thanksgiving holiday shortened trading week. This rally which has provided some calm to the market has once again taken the S&P 500 (see chart here) close to its record high. I was just happy to see a short-term bottom seemingly put in from last month’s sell-off.

As we enter the final month of the year the question now on every investor or traders mind is “can the markets muster up a Santa Clause rally?” Each year this is what the bulls hope to see and that is a year-end rally that takes stocks higher. The case for a Santa rally can be made. First, we have the Federal Reserve Open Market Committee interest rate policy meeting coming up on December 9th & 10th. All eyes and ears will be on this meeting to see not only if the Fed will cut interest rates, but even more so, the messaging and tone that comes out of the meeting on future rate cuts. One could say it was the hawkish comments (click here) made by the Federal Reserve chairman Jerome Powell that spooked investors which then spooked the markets and spiked volatility. In the last Fed meeting Chairman Powell stated there was no assurance of a December rate cut and that they will rely on the economic data to provide the necessary guidance as to cut or not.

Suffice to say, the economic data coming out continues to favor a cut in December in which inflation seems to be at least pausing while the unemployment rate is going higher. These are the two key factors in whether the Fed will cut rates again in December.

Good luck to all 🙂

~George

 

Not So Fast…

Posted on by George Mahfouz

Not so fast was the message that Jerome Powell signaled in last week’s Federal Reserve policy speech. Yes, the Federal Reserve cut the benchmark interest rate by 1/4 point to the 3.75-4.00 range which is what the market expected. However, after cutting the benchmark rate, Chairman Powell took to the podium (click here) and commented “there is no assurance that a December rate cut would occur” which immediately sent the stocks and the crypto market lower. Investors were caught off guard that the Chairman guided in this manner. In fairness to the Powell’s updated guidance, he also stated that because of the government shutdown there are no government economic data reports being released for the Fed to base any future decision on further interest rate cuts which makes sense.

What makes more sense is that Congress comes together now to reopen the government for all the reasons we know, including the restart of key economic reports that are issued by the government. How in the world can the Federal Reserve base policy decisions when they do not get the data they need from the government to assess the current state of the economy?  Investing and making investment decisions is already a complex process and the last thing we need is the leadership of this country to make it even more complex. Let’s hope Congress can come together sooner than later and reopen the government.

The good news is that the Fed did cut rates last week and this should bode well for the equity and crypto markets. Couple this with a better-than-expected Q3 earnings reporting season from corporate America and we should rally into year-end, especially if the government reopens. There are other factors at play such as coming to an agreement with China on trade and continuation of corporate earnings growth. Should all these factors align, then I would not be surprised to see a year-end rally.

Of course there is no guarantee that everything will align by year-end but despite the current uncertainties that we face what is impressive to me is that the Dow Jones Industrial Average (see chart here) the S&P 500 (see chart here), the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here) are still trading near all-time highs.

Good luck to all 🙂

~George

About A Month Away…

Posted on by George Mahfouz

We are about a month away from the election and the markets seemingly don’t care or have any new concerns. Once again both the Dow Jones Industrial Average (see chart here) and the S&P 500 (see chart here) hit records. The Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here) are trading positively as well.

Without question there is even more confidence in the markets now that the Federal Reserve is cutting interest rate. Not only did the Fed cut interest rates by 1/2  point last month, Jerome Powell the Chairman of the Federal Reserve signaled more rate cuts are forthcoming. Couple this new sentiment from the Federal Reserve along with growing confidence in the economy and the job market, it’s no wonder the Dow Jones (see chart here) and the S&P 500 (see chart here) are once again setting all-time highs. Some pundits are beginning to call this a “goldilocks economy” while others are waiting for the next shoe to drop. As far as the next big catalyst is concerned, well clearly it’s the upcoming Presidential election. However, here in October we will begin to see Q3 earnings results being reported from corporate America. This too is expected to be a tell-tale sign of how companies are currently faring and we should definitely see how the consumer is feeling, especially with the rate cut and the positive impact that is having on consumers. This new backdrop should begin trickling down to corporate America revenues and future forecasts.

Let’s take a quick look at the technical shape of the indexes. The Dow Jones Industrial Average (see chart here) and the S&P 500 (see chart here) are trading near the upper end of the trading range they have been in. Please note neither index is in “overbought” territory yet but are approaching the 70 level of the RSI aka the Relative Strength Index. As I look at the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here), these indexes are finding support at their 20-day moving averages. So technically speaking things look to be ok here too.

Good luck to all 🙂

~George

First Rate Cut In Over A Decade!

Posted on by George Mahfouz

Yesterday the Federal Reserve conducted its first rate cut in over a decade! Although widely expected, the markets were disappointed as to how Fed Chairman Jerome Powell signaled that this is does not necessarily mean more rate cuts are forthcoming. Chairman Powell’s statement sent stocks down sharply. The Dow Jones Industrial Average (see chart here) closed down over 330 points, the S&P 500 (see chart here) closed lower by 32.80, the Nasdaq Composite (see chart here) finished down almost 100 points and the small-cap Russell 2000 (see chart below) finished the day down 11 points. The markets were hoping that Mr. Powell would remain dovish and it was clear he was the opposite. That said, a rate cut is a rate cut and the intention is to keep the economy moving. Despite the rate cut move, The White House came out and complained about how Chairman Powell handled his statement and it is no secret that administration wants further rate cuts. I do think additional rate cuts may not be needed due to how Q2 earnings reporting season is going so far. The street was expecting an “earnings recession” at least in the last quarter. But as we are now half way through earnings reporting season, so far so good. There are not many earnings surprises to the downside and future guidance is not too shabby so far.

Let’s take a look at the current technical shape of the markets. The indexes have been going sideways as of late with the exception of yesterday’s selloff. That said, yesterday’s selloff did break the 20-day moving averages of the Dow Jones Industrials, the S&P 500 and the Nasdaq Composite, however, the small-cap Russell 2000 closed above its 20 day and actually demonstrated more relative strength than the other averages. A one day selloff does not necessarily mean the beginning of a new downward trend so let’s wait and see how the rest of earning reporting season goes and then we can assess how the back half of the year shapes up.

Good luck to all 🙂

~George

Russell 2000 - Paula Mahfouz

 

 

New Year, New Records?

Posted on by George Mahfouz

Happy New Year! Will 2018 be a new year of new records? Nothing would surprise me. Especially as the Dow Jones Industrial Average (chart), the S&P 500 (chart), the Nasdaq (chart) and the small-cap Russell 2000 (chart) shattered record after record after record in 2017. In fact the Dow Jones Industrial Average set 70 record closing highs in 2017. That’s not a typo folks, 70 record closing highs. The other aforementioned key indices also set multiple record highs throughout last year. So could we see a repeat performance in 2018? I don’t know about another 70 record highs this year but I would not be surprised to see continuing strength in the markets in 2018. Yes the Federal Reserve is now in a rate hike mode which typically does not bode well for stocks, but this Fed and central banks from around the world understand the need to go about their new rate hike policies in a gradual manner. Raising rates too aggressively could be the exact catalyst to put the brakes on this almost decade long bull market. I don’t think this will be the case at least with our own Federal Reserve. Jerome Powell will be replacing Janet Yellen in early February as our new Federal Reserve Chairman. Mr. Powell who has been a member of the Federal Reserve’s board of governors since 2012 has voted for keeping interest rates at bay while the economy continues to recover.

Speaking of the economy, expansion continues to occur and we will soon find out how our economy is  trickling down into corporate America. Fourth quarter earnings reporting season will begin here in January and this could very well serve as a key catalyst for the continuation of the bull market. That said, I think most investors and traders are looking for the markets to pause and pullback from this historic run we continue to be on. It is truly breathtaking to witness the record pace that stocks have enjoyed for years now. Personally, I hope and some point in time we do get a meaningful pullback so we can have the opportunity to step in at lower prices. Good luck to all and Paula and I wish everyone the healthiest and happiest new year! 🙂

~George