While our monthly commentaries typically recap what happened last month with a snapshot on our outlook, given that the market’s current noise level is louder than a Guns ‘n’ Roses concert, this month we’re going to reverse that formula.
This August earned another gold star at upsetting an investor’s most popular month for family holidays. Four years ago, our family was in the south of France when China decided to revalue its currency lower. Equities promptly fell 11% in a week. While by now, almost 3 years into Trump’s term, investors have become accustomed to an unfortunate and growing ‘gloves off’ way of conduct, it was unsettling to read, this time while we were in the UK, NY Fed President Dudley’s suggestion that the FOMC shouldn’t cut rates just to spite Trump. While Dudley’s quickly retracted comment didn’t impact markets, it was symptomatic of how chaotic the macro ecosystem has become as traditionalists fight to stop the attempted single-handed rebalancing of world order.
Unlike the 19th century proverb which spoke to the weather entering March like a lion and exiting like a lamb, Fed Chair Jerome Powell's press conference last week ensured the reverse happened for the market's exit from July. Fueled by valuation multiples that have expanded more than 20% year to date & driven 95% of the upside in U.S. stocks, equities continued to grind higher during July on hopes that the Fed would complete its 180 degree turn from December's hawkish policy stance and announce its first interest rate cut in eleven years with guidance of several more to follow. Unfortunately, Chair Powell's history of difficulties in communicating policy intentions continued at his press conference on the last afternoon of July, causing the S&P 500 to have its first 1% down day since the last day of May. Predictably with Powell's more 'hawkish than expected' tone, the US dollar moved to two year highs, gold was clubbed and the yield curve bull flattened. But these price moves didn't even last a day.
The wild ride in markets that began with Q4 of 2018 continued during H1 of 2019, but this year’s version has been a surprisingly good one. Starting with a powerful rally from January to April, followed by an air-pocket in May, stocks then soared to new all-time highs in late June. The big question now is whether stocks keep rising, run out of steam, or lose elevation during this year’s 2nd half.