{"id":49670,"date":"2019-05-15T07:00:57","date_gmt":"2019-05-15T11:00:57","guid":{"rendered":"https:\/\/www.ino.com\/blog\/?p=49670"},"modified":"2019-05-14T12:29:24","modified_gmt":"2019-05-14T16:29:24","slug":"sell-in-may-wait-for-the-powell-put","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2019\/05\/sell-in-may-wait-for-the-powell-put\/","title":{"rendered":"Sell In May? Wait For The Powell Put"},"content":{"rendered":"

After turning in one of its best January-April performances in more than 20 years, the stock market has suddenly run out of gas in May. We\u2019re nowhere near correction territory \u2013 the S&P 500 is down about 2% so far this month after climbing more than 18% in the first four months of the year, and up 22% since the Christmas Eve bottom. Yet the financial press has been filled with \u201csell in May and go away\u201d stories, citing the Wall Street urban legend \u2013 or historical trend, take your pick \u2013 that all the money that\u2019s going to be made this year has already been made, so you may as well cash in your winnings and sit out the rest of the year.<\/p>\n

The major impetus behind the dip \u2013 which doesn\u2019t even meet the definition of a \u201cdip\u201d yet since few people seem to be buying on it \u2013 is President Trump\u2019s announcement that he has upped the ante on the trade war with China, raising worries that talks between the two countries will collapse. The recent spate of high-profile IPOs from Lyft, Uber, Pinterest and other companies is also signaling that the stock market may have peaked.<\/p>\n

Which raises the question: Is the Powell Put going to come to the stock market\u2019s rescue again in the near future? How deep will a drop in the stock market \u2013 assuming it keeps dropping \u2013 have to get before the Federal Reserve intervenes and cuts the federal funds rate?<\/p>\n

While the idea of a rate cut seems preposterous, with the economy rebounding to a 3.2% annual rate in the first quarter and the jobs market humming along at its strongest pace in decades, the Fed doesn\u2019t seem to be including that in its calculations. Rather, it says its sole focus and concern is on the inflation rate, which remains stubbornly below its 2% target despite the strong economy. And that being the case, the Fed\u2019s inclination and public comments seem to be leaning more toward a rate cut than a rate increase, which given the booming economy and stock market would seem to be the wrong thing to do.<\/p>\n

Then again, You Know Who and now even Vice President Pence are calling for the Fed to cut rates \u2013 by a full percentage point, no less! \u2013 While the stock market always wants cheap money. Will the Fed give in once again?<\/p>\n

Last week Patrick Harker, the president of the Philadelphia Fed, garnered some headlines when he wandered off the reservation and said he expected \u201cto see one [rate] increase at most this year; possibly one, at most, next\u201d year. However, he also hedged his bets by declaring that the low level of inflation might cause him to change his view. \u201cIf any component of the outlook were to affect my view on the appropriate path of monetary policy, it would be inflation,\u201d he said. Harker doesn\u2019t currently have a vote on the Fed\u2019s monetary policy committee.<\/p>\n

But Fed Vice Chair Richard Clarida tried to downplay the idea of an imminent rate cut or a rate hike for that matter.<\/p>\n

\u201cWe don\u2019t see a strong case to move rates in either direction,\u201d he told Bloomberg Television. \u201cI would not undergo heroic efforts -- including rethinking our monetary policy framework, or significant monetary policy stimulus -- in order to edge 1.8% [inflation] up to 2%.\u201d<\/p>\n

That comment illustrates how silly the Fed\u2019s obsession with what it believes to be too low inflation has become. Are the members of the FOMC really wrestling over how to raise the inflation rate by two-tenths of a percentage point when they haven\u2019t been able to do it in about 10 years, even though the unemployment rate is at a record low?<\/p>\n

The Fed really needs to get away from its preoccupation with trying to raise inflation \u2013 a ridiculous canard in the first place \u2013 and focus instead on what\u2019s really going on, like a stronger-than-expected economy that can handle an interest rate rise or two, which would take some froth off the stock market by allowing it to self-correct. However, this Fed doesn\u2019t seem to be able to exert its independence \u2013 despite what it says \u2013 and ignore political and market pressure and get back to normalizing monetary policy when conditions are allowing it.<\/p>\n

That being the case, I think the next move we can expect from the Fed will be a rate cut, sooner rather than later, perhaps, depending on how the trade talks with China go. Clarida hinted that if a trade deal \u201cis not the outcome, then we\u2019ll certainly take that into account in future policy,\u201d which sounds like a rate cut to me.<\/p>\n

So if you\u2019ve already taken your profits and gone away for the year, or are planning to, you may want to wait around and see what the Fed does next. <\/p>\n

Visit back to read my next article! <\/p>\n

George Yacik<\/a>
\nINO.com Contributor - Fed & Interest Rates<\/p>\n

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

After turning in one of its best January-April performances in more than 20 years, the stock market has suddenly run out of gas in May. We\u2019re nowhere near correction territory \u2013 the S&P 500 is down about 2% so far this month after climbing more than 18% in the first four months of the year, […]<\/p>\n","protected":false},"author":16,"featured_media":49680,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6920],"tags":[8853,9264,511,7310,6938,230,11954,5050],"class_list":["post-49670","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ino-com-contributors","tag-fed-balance-sheet","tag-fed-chair-jerome-powell","tag-federal-reserve","tag-federal-reserve-monetary-policy","tag-george-yacik","tag-interest-rates","tag-long-term-interest-rates","tag-u-s-economy"],"yoast_head":"\nSell In May? 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