trade wars stock market rate hikes

The Excuse For Today’s Stock Market Sell-Off Is Trade Wars! Fuhgedaboudit!

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The Excuse For Today’s Sell-Off Trade Wars! Fuhgedaboudit!

Happy days are here again! First, it was rising inflation and rising yield fears; now it is the looming trade wars. The whole things with the tariffs aren’t new news; in fact, it is old news. So why is now the time for the market to go into freakout mode? I dunno, it never seemed to care before. But the tariffs seems more like posturing and a political game of chess. In fact, there are reports tonight that the US is holding talks with China on fair trade.

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Fragile

All of this volatility the past few weeks tells us just how fragile the stock market is, and that maybe the critical take away here. Who knows what could rattle the markets next?

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Rate Hikes

The thought of 4 rate hike from William Dudley, the  NY Fed governor, mentioned today surely didn’t help either. But the Fed isn’t going to raise rate 4 times in 2018; it ain’t gonna happen.

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Inflation Watch

The trimmed mean PCE inflation rate was up 1.69 percent y/y at the end of January. Sound inflationary? It is not. The effective fund’s rates today stands at roughly 1.4 percent, think about what four rate hikes would mean? Think about where 3 rates hikes would be? You would have an effective funds rates at 2.15 percent to 2.4 percent, for a trimmed mean PCE rating of 1.69 percent? It seems excessive, especially since years of low rates and trillions in QE hasn’t stoked inflation.

A 2.4 percent effective funds rate, would push the yield curve to near inversion, if not invert it. The bond market speaks loud, 10-year yields have backed off their highs and fell to 2.8 percent today, the dollar weakened, failing at significant resistance.

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Global Market

The problem is that we live in a global market, and the US is no longer an island unto itself.  The ECB and BOJ at this point would love nothing more but the Fed to keep raising rates, with hopes of the dollar strengthening, and the euro and yen weakening.

As long as the European and Japanese yields stay low, our rates will be desirable to bond buyers abroad. That will cause buyers from overseas to buy our bonds, and keep a lid on the long-end of the curve from rising too much.

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The Fed can raise rates as much as they want but they are fighting a losing battle as long the ECB and BOJ keep NIRP in play.

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Tags: #sp500 #inflation #yields 

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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.