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12/3/2018

It’s been a few weeks since we’ve raised our profile on the state of the markets, given that 10 year yields breached the 3% level.  Since then a lot has transpired, which has included Fed minutes that alluded to a string of tightenings throughout 2019 and a continuance of tariffs via China from the US.  The result was a sizeable sell-off in the major equity indexes with the majors suffering about 10% declines. 10 year Treasuries managed to creep up to the 3.10% area and the Greenback rallied on balance.

However, over the past couple of weeks more changes have transpired, which are depicting a dissipation of pressures on US equities.  These events included some weak economic data on the real estate front, durable goods orders and some big name earnings misses.  Other events included a Fed that pulled back its hawkish forward guidance towards a near neutral stance and most recently it has been reported that the US/China tariff battles have reached a truce for the coming weeks.  The result should favor further recovery for the major US equity indexes and some consolidation of US treasury yields and the Greenback.

Things to watch at this juncture however, are continued vigilance on monitoring of the strength of the US economy, number by number, and any possible end to the tariff truce.  The main topic to remember is that the fed backed off a hawkish policy.  Significant gains in US Equities and a series of strong US economic indicators including inflation will quickly reverse the Fed into becoming hawkish once again and will quickly revive rising yields for US treasuries and pressure on stocks again.  We are at a pivotal area for the financial markets.

 

Stephan Kudyba (MBA, PhD)                      THE MARKET DOCTOR

 

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