The economy may or may not be slowing, but it’s clear that the stock market still loves the idea of lower interest rates.
Exhibit A is yesterday’s commentary from one Fed vice chairman. “Uncertainties about the economic outlook are unusually high right now,” Don Kohn advised the Council on Foreign Relations yesterday, according to Reuters. “These uncertainties require flexible and pragmatic policy-making — nimble is the adjective I used a few weeks ago.”
For the uninitiated, this may sound like casual chit chat on the rubber-chicken circuit. But for the savvy trader, this was insider code for: the Fed will CUT rates at the December 11 FOMC meeting. Fed funds futures have no reason to argue: as we write, the January contract is leaning closer to the idea that a 25-basis-point reduction is in the offing.
Perhaps at some point in the coming days another Fed head will take to the podium and give the stock market another reason to run equities up another 300 or so points on the Dow. This, dear readers, is the age of speculative opportunity in the stock market, albeit a wobbly one that’s increasing dependent on obscure commentary by central bankers.
Fortunately, ours is a multi-asset class world that’s accessible by ETFs and other publicly traded securities. For strategic-minded investors, there’s always a varied mix of relative risk and return opportunities. U.S. stocks, for our money, don’t look all that attractive, although they don’t appear overly expensive either. This is not early 2000, when valuations were in the stratosphere. But neither is it 1982, when equity shares were about as popular as yellow fever.