Economic Insights - March 2019

Comments Off on Economic Insights - March 2019
Economic Insights - March 2019 LoadingADD TO FAVORITES

Through March 1, the S&P 500 has generated a total return of 16 percent from the December 24 low while our PARE-5 strategy generated over 36 percent.  Over that period, the dominant story-line has changed from “oncoming bear market” to “strength begets strength.”  And yet, week after week, the skeptics have told us the rally was not to be trusted.  The result has been dismay.

But it hasn’t come as a surprise to the Business Briefings editors.  On the contrary we were amazed that it took so long for the bears to capitulate.  And now, as we approach new all-time highs, we expect the bull market to continue. 

Why?  Consider the facts.

On the interest rate scene, there is plenty of room before the Fed puts the economy into a recession watch.  The real Fed funds rate is roughly 25 basis points and unlikely to move much above that.  The real Fed funds rate at the start of the past eight recessions was no lower than about 2 percent, a level far above a where the Fed is today.

Global stock markets have started to rebound. Many downward sloping trend lines have been broken to the upside.  By our estimate, some are now back into a bullish configuration, signaling that their bear markets may be ending.  The commentary may be changing from a “synchronized global slowdown” to a “synchronized bottoming in these economies.  That could then lead to a “synchronized global re-acceleration.”

Headline risk on a couple of 2018 issues has now been neutered.  The government shutdown, the political dysfunction with the debate on the wall, and the Chinese tariff issue.  Today, the probability of these escalating to a market-moving threat is low.

Moving back to the recent strength of the rally. Long “winning streaks” like the one we just witnessed usually don’t end with an immediate reversal to meaningful downside activity.  Instead, they have a high probability of continuing higher over the next several months, although an interim period of consolidation and retracement can be expected.  On this topic, Bespoke Investment Group writes: “The S&P 500 is on a record pace for the number of positive days it has had so far in 2019.  Over the last 90 years, there have only been eight...

To continue reading, become a paid subscriber for full access.
Already a Business Briefings subscriber? Login for full access now.

Subscribe for as low as $135/year

  • Get 12 months of Business Briefings that will impact your business and your life
  • Gain access to the entire Business Briefings Research Library
  • Optional Business Briefings monthly CDs in addition to your On-Line access
  • If you do not like what you see, you can cancel anytime and receive a 100% pro-rata refund