Do you ever go through seasons where you have more questions than answers? And when you get one answer you feel like it just creates even more questions? This is how I would describe the news of the week and the market movement that followed.
Consider in our recent blog posts where we have discussed two main issues that are affecting the market. For the past couple of months interest rate levels and China trade concerns have kept investors on edge with swings of volatility.
On Wednesday Federal Reserve chairman Jerome Powell provided an update about interest rates. He shared how rates are nearing neutral. This means they have raised interest rates to a point where they may not need to raise them much further. The S&P 500 rallied over 3% that day! You see, the market was concerned that the Fed was raising rates too high, too fast. So this small change in their tone made a big difference.
With this change; however, there are some additional questions to now consider. Was this change in tone only made because the President and other market analysts have been telling the Fed they are making a mistake? Will they really slow the increases of rates? These are things we have to wait and see. So while the initial news is good news, we have more questions that have to await an answer.
This week, we could hear of progress on the second main issue concerning the market. Trade concerns with China have brought anxiety for investors as it will affect many companies and the cost they pay to have goods produced, in turn increasing our cost to buy those goods. There has been much talk that conversations are happening leading up to a meeting Saturday that President Trump plans to have with Chinese President Xi Jinping at the G20 Summit. The outcome of this meeting will again be a big driver for market movement ahead.
It is likely that the President and top economic advisors really hope to make some progress on a trade deal between the two countries. With an additional round of tariffs set to go in effect January 1st, investors hope the two leaders can reach an agreement that avoids any trade war. Until the meeting takes place there are still questions that need answered. And now we wonder if there really has been the progress we’ve heard about.
Even though it seems there are more questions than answers, it does seem that leaders are listening. The Fed seems to be taking into account new data on economic activity. The President is realizing that we have to make progress with China on trade concerns. We are seeing positive movement in these areas that have kept investors nervous. So the relief rally we saw on Wednesday was a welcome one! As we follow the news we will continue to keep you updated as answers come.
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