Patient?
The statement released by the Federal Reserve on January 30, 2019, contained the following sentence:
“In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate.”
Here is the definition of “patient” offered online by the Oxford Dictionaries:
“Definition of patient - Able to accept or tolerate delays, problems, or suffering without becoming annoyed or anxious.”
- Oxford Dictionary
The market’s immediate interpretation of this one-liner was that the Fed would delay further “normalization” of monetary policy. This stands in sharp contrast to language in their previous statement suggesting that further increases in the target rate would be appropriate.
How did this translate into market activity? The rate on the two-year note dropped about 7 basis points and the rate on the 30-year bond increased about 4 basis points. The U.S. dollar index dropped a quick 0.71%, gold spiked $15/ounce and the S&P 500 Index spiked 30 points (about 1.1%).
Source: Bloomberg
Prior to the statement, the markets were concerned that the Fed normalization policy was on autopilot – rates were heading higher, their balance sheet would continue to shrink, and the combined tightening would bring an end to the economic expansion. Markets were “becoming annoyed” and “anxious.” Now they seem to be celebrating.
My take on the subject is that regardless of this most recent series of moves, the market is still very skittish and it will be buffeted by monetary policy and political headlines. Still to be resolved are open issues including trade policy with China and Brexit negotiations, among a long list of others.
I’ll close here with a preview of what I think First Horizon Advisors' Five Factor Framework will look like when we update it at the close of January:
- Economic activity – RED
- Market Trend – RED
- Monetary Conditions – YELLOW
- Investor Sentiment – GREEN
- Valuations – YELLOW
Stay tuned -- 2019 is just getting started!
Index Disclosure:
An index is unmanaged and is not subject to fees and expenses typically associated with managed accounts or investment funds, Investments cannot be made directly in an index. The S&P 500 Index is regarded as a gauge of large cap U.S. equities. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.
