The Powell Put…And Take
The S&P 500 increased 2.5% in July, but the real fireworks occurred after the Fed meeting July 31 through August 5. During that 4 day period the market was down 5.6% (see Figure 1).
Fixed Income had similar wild gyrations, with yields on the US 10 Yr Treasury falling 30 basis points from July 31 to 1.71% on August 5, after holding relatively stable for July (Figure 2).
Regular readers will recall that Stableford has been conservatively positioned, believing that markets were close to a top and somewhat expensive. For a while now we have believed that the market was a bit ahead of itself. Our positioning has helped drive relative performance during the pullback and given us a sense of calm during this panic.
So, what changed?
Recall that in June the Fed began to speak more dovishly, signaling lower interest rates. And equity markets heard them loud and clear, rising 7%. July was similar, with equities up 2.5%, until the Fed meeting on the last day of the month. Investors had been expecting more dovish talk, and some were expecting a 50 basis point reduction in the Fed Funds rate. Instead, they got a 25 basis point decrease and a more hawkish view.
While the Fed’s slightly more hawkish view was slightly unsettling, President Trump surprised investors with another round of tariffs aimed at China. The combination of these two factors, along with China’s apparent determination to dig in their heels this time, threw markets into a tizzy.
Investors remain perplexed, unsure whether Fed Chairman Powell remains ready to stand behind them or not. Furthermore, should President Trump maintain his position regarding China, there will eventually be negative economic consequences for the US. Perversely, these may force the Fed to lower rates, something that the President has been pressuring them to do.
This market commentary was written and produced by Stableford Capital, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 INDEX: The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.