The stock market gains of the past week or so have largely stemmed from political and macroeconomic events that replaced our potential areas of strife with market-friendly alternatives. We’ve seen reversions to simpler, friendlier times and the deferral of potential threats. Very few of the gains over the past week relate to any fundamental data of current growth trends, company earnings, or other real-world data-driven demonstrable proof.
First, the supposedly independent Fed has seemingly buckled under political pressure to revert to an easier monetary policy. Admittedly, this is a large oversimplification, but there is an essential truth here. For months, President Trump has complained about rising rates and the Fed. Finally, after sufficiently rattling his saber, Trump’s appointee for Chairman Jerome Powell (perhaps fearing his job was at risk) kowtowed to the pressure. At a speech to the Economic Club of New York, Chairman Powell said current rates were “just below” neutral at the moment. The direct suggestion is that the 1-rate-hike per quarter schedule will end after this December Fed Committee meeting. The peripheral (and tenuous) implication is that the Fed is going to prioritize the will of the White House over the actions suggested by raw-data, possibly even including reversion to a looser monetary policy.
Second, the trade disputes with China have been given a 90-day extension as both sides look at tariff reduction and a possible path towards normalizing trade disputes.
Third, the three NAFTA partner leaders signed a symbolic update to the law, called the USMCA, with few changes to the original framework. The new version has to get through legislative branches of each country to be ratified, but the overarching truth of the new bill is that there are very few differences between it and NAFTA. The USMCA is really just NAFTA 2.0 with logical updates to intellectual property rights (remember NAFTA preceded the global, ubiquitous, digital marketplace we enjoy today), labor practices, access to new markets, and other small tweaks here and there.
Finally, the threatened partial government shutdown (over border wall funding) looks like it will get a two-week reprieve from its original December 7th deadline.
It’s amazing how quickly investors can be assuaged given how little progress has actually been realized. Still, you can’t blame investors for being optimistic. It looks like Washington’s self-created problems are being, if not resolved, at least addressed with positive potential. It looks like we’re learning how not to trip over our own feet.