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We’re now well into the first quarter of 2019 and the message so far has been a fed that has not-surprisingly turned more dovish since their late 2018 tightening stance along with increased jawboning on trade negotiations with China.  These two factors were the major albatross that led to the sizeable downturn in the major equity indexes.  Given the near term mitigation of these factors, stocks have shown a sizeable rebound from the lows set.  Additionally, and very importantly, 10 year treasury yields aggressively dropped below the red hot 3% yield level.

We’re on the side that the Fed should hike rates again in the next few months but offer no guidance on future policy.  Robust job growth is putting pressure on the system and muted 10 year yields is causing imbalances in real estate as far as investment and development.  Will the Fed hike?  Not unless wage indicators or inflation indicators (which are largely flawed) show some big moves.  The result may just be a mild continuation of mal-investment all over again.

On the trade/tariff front we see a lot of jawboning with perhaps some flashy positive promises from time to time to redact tariffs…but on balance, we see continuation of justified tough tariff policy by the US.  At this juncture we see no major conviction in the markets but some signs of a return to mal-investment given the muted level of 10 year yields.


Stephan Kudyba (MBA, PhD)                      THE MARKET DOCTOR


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