Market Strategist: Both Trade Deal, Rate Cuts Needed to Prevent Recession

We don’t know if a trade deal can prevent a recession.

Market Strategist: Both Trade Deal, Rate Cuts Needed to Prevent Recession

Seal of the Board of Governors of the United States Federal Reserve System in the ground at the Marriner S. Eccles Federal Reserve Board Building in Washington. (AP Photo/Andrew Harnik, File)

Trade war

Markets are exhausted regarding the China trade agreement. They have been led to believe, multiple times, that resolution is imminent, only to be let down time after time.

Both sides are feeling the highest levels of both political and financial pressures, while at the same time market positioning is one of the most defensive since the start of the conflict.

Recent delays in tariffs are encouraging and we believe that both sides are ready to get out of the world’s spotlight & focus more on the issues inside of the country. Things could be setting up for a breakthrough or at least some sort of ceasefire.

Federal Reserve

The Fed was all but giddy about rate hikes in 2018 and ignored signals of a cooling economy to chase a phantom neutral rate.

In 2019 the Fed has committed to becoming more data dependent. Despite this decree, the Fed is ignoring signals of a cooling domestic and global economy and seems hesitant to cut rates.

We feel this Fed is picking and choosing what data to be dependent on and refuses to get ahead of the market on cutting rates. The Fed is continuing their backwards policy of cutting rates behind the market and raising rates ahead of it.

Recent hot inflation numbers are putting the FED more into a corner, but we still believe they need to cut rates in September. From a market expectations standpoint with positioning calling for several more cuts, a surprise pause would put a fragile economy on edge and also from a technical standpoint, the FED needs to continue to do its part to try and move the yield curve away from inversion.

Economy

We don’t know if a trade deal can prevent a recession. We don’t know if the Fed can prevent a recession. What we do believe is both of them, doing their part in concert would.

There’s not a lot of more unsettling things than an administration & a Federal Reserve at odds with each other. That hurts CEO confidence which will definitely make them pullback from capex spending & new hiring.

A couple weeks ago, when 30-year treasuries yield dipped below the S&P 500 yield, we made a call for longer term investors to move more into equities and we stand by that call today. We continue to believe the best opportunities lie in some of the small cap value names that have seen almost no money flow in the past several years from what we believe is the passive investing phenomenon. International continues to also trade at historically low multiples & any breakthrough in trade could see a changing of the guard into favored areas of the world & let some of the areas abroad start outperforming.



Disclosures

Securities and advisory services offered through Centaurus Financial, Inc., member FINRA and SIPC, a registered investment advisor. Centaurus Financial, Inc. and First Franklin Financial Services are not affiliated companies. This presentation is for educational purposes only and is not intended for investment advice or a solicitation of services.