The fate of the market this year could be in the hands of the ‘Powell Put’

Call it the “Powell Put” or the “Powell Pivot” or something else, but the Federal Reserve chairman’s recent change in approach to monetary policy is reverberating through the markets.

In just a matter of a few months, central bank chief Jerome Powell has evolved from a hawk on interest rates — in favor of pushing them higher — to a seeming dove intent at the very least on waiting to see how conditions evolve before making another move.

Before running into some trouble at the end of this week, the market appeared to be rallying at least in part on a more accommodative Fed.

With a multitude of headwinds still brewing — anticipated negative earnings growth in the first quarter is just the latest — the big question will be how far Powell and his fellow policymakers will be able to carry the markets with their stated intention to be “patient” about future tightening.

WEEKLY MARKET SUMMARY

Global Equities: Global equities pulled back in weekly trading, after data showed slower-than-expected global growth and the deadline for a US-China trade deal ticked closer with no substantial progress. US indices were relatively flat for the week while developed international and emerging markets were both down more than -1%. Optimism over a trade deal had been rising in recent weeks, however, reports that President Trump and Chinese President Xi Jinping are unlikely to meet before the March 1st trade deadline caused investors to reign in expectations. There is still a possibility that President Trump pushes back the March 1st deadline, when tariffs were due to jump from 10% to 25%, but White House economic adviser Larry Kudlow’s statement that that the US and China still have “miles to go” added to the uncertainty.

Fixed Income: The yield on the 10-year Treasury Note eased slightly to 2.63%, down 5 basis points from the week prior. Home buyers have found favorable terms thus far in 2019, as the average 30-year fixed-rate mortgage averaged 4.41%, over 50 basis points lower than last November, when rates were averaging just under 5%. High yield bond mutual funds and ETFs pulled in $3.86 billion in the weekly period ended February 6th, the largest weekly inflow since July 2016. High yield bonds are off to a blistering start in 2019, with the lowest credit quality CCC-rated bonds leading the way. After zero issuance in December, borrowers are back in force, as evidenced by a $2.235 billion issuance from Clear Channel Outdoor Holdings Inc., the largest CCC-rated deal since September.

Commodities: Crude oil declined in weekly trading, with US Benchmark West Texas Intermediate falling from $55.26 to $52.71 as of Friday afternoon. Weekly domestic crude inventories rose 1.3 million barrels to 447.2 million, 6.4% more than a year ago. Clashes near Libya’s largest oil field put upward pressure on prices, however larger concerns over slowing global growth ultimately pushed crude lower. Natural gas prices were also lower, to close the week at $2.59/MMBtu.

In utilizing an approach that seeks to limit volatility, it is important to keep perspective of the activity in multiple asset classes. We seek to achieve superior risk-adjusted returns over a full market cycle to a traditional 60% equities / 40% bonds asset allocation. We do this by implementing global mandates of several tactical managers within different risk buckets. For those investors who are unwilling to stomach anything more than minimal downside risk, our goal is to provide a satisfying return over a full market cycle compared to the Barclays Aggregate Bond Index. At Horter Investment Management we realize how confusing the financial markets can be. It is important to keep our clients up to date on what it all means, especially with how it relates to our private wealth managers and their models. We are now in year nine of the most recent bull market, one of