We're in an interesting spot here. Let's take a step back and observe what is occurring:
- The Fed, through various speeches by officials over the past few weeks, has virtually guaranteed the market a 25 basis point cut next week
- The market has stopped reacting to good earnings by awarding companies with any value creation whatsoever
- Bad earnings and/or guidance are being punished inordinately a la NFLX being down 16% this past week
- Financials despite being in possession of a value equation that hasn't been witnessed since the financial crisis can't attract investors, even after raising dividends, buying back stock and delivering generally good earnings
- Small-caps continue to be a ticket to underperformance having been completely orphaned by investors in 2019, which is unusual during a rally as powerful as this one
- Gold continues to outperform
- Silver has joined the party recently with its largest rally in 3 years
All of these fundamental developments are occurring as the S&P continues to be in a dog fight with some very real resistance in the 3000 area.
What we are seeing with these mostly bearish fundamental developments is a textural change in the markets that, while being subtle in nature at the onset, possesses some very real consequences over the near-term.
By the Fed coming out promising a 25 basis point rate cut, we can now surmise, with a fair amount of accuracy, that the rate cut is factored in. The only way the Fed will be able to stimulate the markets over the short-term via policy action is to announce a 50 basis point rate cut, while continuing to sound the dovish horn. Judging by the seemingly timid, by the book character of the current Federal Reserve Board, they will not be willing to participate in any risque behavior. 25 basis points is all the market will get.
We also can surmise, with a fair amount of accuracy, that the market isn't willing to create any further value in stocks irrespective of how brilliant their earnings. With the S&P camping around record all-time highs, investors either want to wait until the summer doldrums are finished to put more money to work and/or want further macro clarity in the months ahead.
All the meanwhile, money is pouring into risk-off assets like gold and silver that protect investors from governmental faux pas in all of their colorful varieties.
This is very suddenly a much different market environment than it was just a week or two ago. Textural changes of a subtle variety should not be ignored as these are the clues that a majority are not programmed to grasp, giving those who choose to tune into this frequency of market signal a decided advantage.
As such, for the time being the only action that matters is to reduce exposure and risk as much as possible until there is clarity of some shape or form.
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