The first step in solving a problem is figuring out what is causing it. Too often we get so focused on the symptoms that we forget to treat the disease. The market – which has had a fantastic year – is having a tough few days. There are two competing causes: trade and Fed policy. So, which is it?
The Fed has a tough job. We used to understand that. We used to give experts the benefit of the doubt, because we understood that doing things is hard and requires a certain set of knowledge and skills. We understood that because we were a nation of doers, so we naturally understood the difficulty of doing. Today we are increasingly a nation of spectators. Spectating is easy, and whatever it is we are spectating looks a lot easier than it actually is.
Last fall we had a market sell-off because the groupthink on Wall Street says that we are due for a recession. There was absolutely no sign of a recession in the U.S., but that didn’t matter. The data for the fourth quarter came in and not only are we not in a recession, but the U.S. economy grew at the fastest pace in more than a decade. Did they learn?
The market rally that greeted us in the New Year has hit a speed bump. Now we are down one week and up the next. So is the rally over and another downturn around the corner, or is the rally just getting started? In other words, which way do we go from here?
Federal Reserve (Fed) Chairman Jerome Powell has a communication problem. It must be incredibly frustrating because the problem really isn’t with anything he says; the problem is that the people he is talking to – market participants mostly – don’t actually listen.
