Whether you're watching CNBC, Twitter or another news outlet, you're hearing a great deal of talk about the odds increasing that the Fed will drop rates soon. Everyone's cheering it on..........yet no one's talking about recession possibilities. Don't say 'recession' on live tv! Keep that notion out of your head! At least I believe that's what Trump is thinking as he warms up for his 2020 campaign. He wants the market "up, up, up". A strong stock market with plenty of green and profits in your pocket. If it fails after 2020, so be it. At least he'll have his re-election and be further away from any prosecutorial attacks for four more years. If he loses, blame it all on the Democrats!
In the meantime our yield curve continues to invert, or decay if you see it that way; implying a rough road ahead for the U.S. as China and European countries slowing low and behold, the U.S. having a "global market", the U.S. looks to be slowing as well. Shocker!
Now the US housing market is slowing and everybody should be aware of this. Then there's the Washington Post declaring “Wall Street Predicts Economy Slowing Dramatically.” The story says investment bank Goldman Sachs is predicting a second-half of 2019 slowdown due to the fading effects of federal tax cuts and rising federal interest rates.
So what do traders do? Of course they now believe Powell will "bail us out" once again and lower rates, rather than raise. Save us from the big slowdown! The big question now is, how low can he go? Now where near as low as they did after the financial crisis but will it be enough? They're now betting on a rate cut in September but at least one Pragmatist stands by his guns and hopes for a hike - bring it now. I wish he were right but this is a market under Trump. All normal bets are off.
Consider this: The U.S. is on average two years ahead of Europe in terms of economic rebound and growth. If we cut rates, they follow. If we hike, they will eventually follow suit........once the nasty Brexit turmoil is behind them, but it won't be this year. The U.S. should be leading. We should hike further and let equities suffer their correction. That would be a buying opportunity for all.
The 2020 election should have nothing to do with price discovery. Keep it separate and apart. Now we must consider, will Trump let us?