-- Mario Draghi, ECB President
The two forces now jockeying for position in the market are The Fed and the bond market. After the first sharp decline on 2/6, "Bond Vigilantes" instantly replaced the pervasive clear skies narrative and even the President went radio silent about the stock market. Given the political tensions surrounding the Fed, the market assumed that - without a guarantee from the new chairman - this time they might not support the market and could leave Trump stranded. That selling pressure ceased on 2/13 after Powell released a statement essentially saying the Fed will intervene if necessary - i.e., they are willing to do whatever it takes to keep prices up.
Now, the questions are:
1. Will Powell's single statement be enough to guarantee a Put and thus push us higher into 2019, or can bear forces push us down further in order get a crystal clear guarantee from Powell that he'll step in with more QE?
2. Even if Powell does guarantee a Put, will it really be enough to push us higher given: a. Higher interest rates (which historically move inversely with stocks), b. Quantitative Tightening (QT) as opposed to QE, c. Selling pressure from the unwinding of the $4.5T balance sheet, and d. The high probability that the economy could be in recession within the following two years, if history is any guide.
3. What specifically is the Fed's policy prescription for the overdue recession, and how will that model be consistent with tighter monetary policy?
Unless you're a professional or believe you have a natural talent, it's probably best to remain on the sidelines until the smoke clears. Th reckless buying by fund managers and retail is on hold, as the fear from the big sudden drop hasn't dissipated from the investor psychology.
This is also the phase of the bull market where the secondary consumers digest all of the primary consumers that haven't developed new survival mechanisms yet.
