November 8, 2019
I recently heard a guest on CNBC say that the current market environment reminded him of a hurricane. Specifically, the eye of a hurricane – the sunny, calm respite between the front and back sides of the storm. Looking back at the turbulence we’ve experienced over the last two years, I couldn’t agree more. Over the last 20 months we seem to be in the same place as we started with large pullbacks in the market like we experienced in December or 2018. Just two weeks ago the S&P 500 was only 2% higher than it was in January of 2018. While I agree that we were in the eye of a Hurricane and that December’s pull back was the beginning of the storm, the data suggests that we’re now out it.
Over the last three months we have seen the most amount of negative news since the December decline – while recession sentiments are the highest we’ve seen since the 2008 recession. Even still, the market has held the gains we’ve earned over the last three years. Despite the negative news, last week the S&P 500 moved higher and out of it’s two year consolidation, making new all time highs. This is indicative of strength in both the stock market and the economy. The powerful uptrend in global stocks is alive and well.
The Federal Reserve has stated that it will start to buy approximately $60 billion of bonds every month. They have already started with a $100 billion purchase last week and will continue through the second quarter of 2020. This part of their expansionary policy is their way of increasing the money supply and encourages lending and investing. This results in the stock market and economy growing in two ways: first, more capital in the market means lower interest rates on traditionally safe financial vehicles such as money market accounts and certificates of deposits. Thus, incentivizing investors to increase their equity holdings, resulting in higher stock market prices which we’ve now begun to see with the S&P reaching new all-time highs this past week. Second, lower rates means lower borrowing costs. Creating opportunity and incentives for publicly traded companies to expand operations through extending their leverage which can potentially increasing their stock prices.
Impeachment Inquiry
For those who have been following along the inquiry that Nancy Pelosi made to impeach the president. We know that it comes after a complaint which came from inside the intelligence community – claiming that President Trump may have pressured a foreign leader to influence the elections. In order for the president to be removed from the oval office, via impeachment, at least 20 republicans and all the Democrats would have to vote in favor of it.
The Senate recently got together on October 31st to vote on the procedures for moving forward with the Impeachment inquiry. Of the 196 Republicans in the Senate, 2 did not vote and 194 republicans voted against proceeding with impeachment – with no Republicans voting in favor of proceeding. Based on this vote the odds of getting at least 20 republican senators to vote in favor of removing the President is quite low.
Ultimately, we have heard that the impeachment of the president may result in the stock market declining – let’s not forget that Wall Street is predominantly concerned with corporate profits and the economy. Both of which are doing quite well. We’re still in the longest bull market in American History, corporate profits are at an all-time high, unemployment numbers are at a 50 year low and interest rates are also quite low, and likely going lower according to the Fed’s expansionary policy.
As always, we will stay mindful of market trends, shifts and macro political issues. If you’d like to hear more from us about our outlook on the year ahead of the elections, feel free to reach out to us at info@AllOneWealth.com
Christian Carreon .:. Chief Investment Strategist, AllOneWealth
