Alan Gayle

The Fed is Driving the Bus…Watch Out!

The Fed is Driving the Bus…Watch Out!

Watch out for the bus! The potential impact of the rate hike and forecast revision from the FOMC is being priced into both bond yields and stock prices, and the adjustment period will likely be fairly rapid. We may see another re-test of the stock market lows in June, which will reverse most all of the portfolio gains this summer.

Tough Talk from Powell Sends Stocks Lower

Tough Talk from Powell Sends Stocks Lower

His message, delivered at a symposium in Jackson Hole Wyoming, was short, concise, and not very sweet. The gist of his speech was that the central bank’s battle against high inflation would last longer than many had previously thought and that interest rates would have to rise higher and stay high until there was meaningful progress bringing down inflation.

PERSPECTIVES ON POWELL'S JACKSON HOLE SPEECH – 8/27/2021

Bottom line: the Powell Jackson Hole speech reinforces my belief that the Federal Reserve is about to begin the long process of normalizing monetary policy, which means a gradual shift away from the near zero rates begun in March 2020. Rates will eventually rise which warrants a shift to more defensive bond portfolio position with shorter maturities. The writing is on the wall. I do not see this policy shift as a threat to further gains in the stock market, however, and I expect equities will continue to outperform bonds over time.

Stocks higher as summer begins. Will they hold through the dog days?

The S&P 500 rose an impressive 3.72% in July, supported by strong economic and earnings growth as well as a slight lessening in trade tensions. Via Nova’s outlook remains positive, but near term, the dog days of summer may weigh on stocks particularly in a mid-term election year.

REVIEW & OUTLOOK: STOCKS ADVANCED DESPITE HEIGHTENED TRADE TENSIONS

We believe the facts of a healthy economy and strong earnings growth justify a bias in favor of equities and away from bonds. However, less accommodative central bank policies and the potential for a trade war are tangible threats to an otherwise positive outlook.  Caution, not fear, is warranted.