On Monday 12/17/18, I highlighted 3 critical events during this week: “The next couple of days will be critical. The Federal Reserve meets 12/18 – 12/19. The US Government faces a partial shutdown on 12/21 unless the President and Congress can agree on a spending deal. The S&P 500 is dangerously close to the lowest level for the year (2,532 set on 2/9/18).”
Using a baseball phrase – 3 strikes and you are out.
On 12/19/18, the Federal Reserve disappointed the market, primarily in the Chairman’s news conference where he did not seem to acknowledge the message the markets were sending him. This was clearly seen as the S&P 500 was positive 1.5% on 12/19/18 prior to the news conference, but reversed swiftly and wound up down 1.5% by the end of the day. [strike 1]
That intra-day reversal saw the S&P close below the 2,532 level I felt was critical to hold. [strike 2]
Today, attention turned to the US government shutdown. The Senate passed a stop-gap funding bill on 12/19/18 but today the President stated he would not sign it over border wall funding. The reality is the President and Republicans don’t have the votes to get what he wants. His inflexibility likely means a partial shutdown of the Federal government. While the economic damage from a shutdown is likely to be insignificant, the damage to the market psychology is huge. This latest episode of government dysfunction caused another down day for stocks. [strike 3]
As I said on Monday, the market is ignoring reasonably sound fundamentals (with the exception of government), but as a famous economist once said “The market can remain irrational longer than you can remain solvent. (John Maynard Keynes)
I continue the process of moving portfolios into safer investments as the situation evolves.
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