An avalanche of data this week. A lot of it however, is not necessarily useful information for investing purposes. We have new record numbers for the ‘master’ of indexes (the S&P 500 Index*), new records for global debt with a negative yield (can it be called a yield when it’s negative?), a new crypto-currency from Facebook (!), new hopes for the trade skirmish with China, and of course more new economic data.

From my perspective, there is a bottom line here and it’s pretty straightforward.  If investors and traders have learned anything over the past decade, it is that when the world’s central bankers are all singing from the same dovish songbook; the chorus is ‘Happy days are here again’.  In plain English, Risk assets tend to rise and bond yields tend to fall as stocks discount better days ahead and bond traders stand in line to buy bonds.

It is unusual that this message from the world’s bankers has been this clear, or this universal.  This makes appropriate allocations and trading decisions a bit simpler.

European Central Bank honcho Mario Draghi (‘Super Mario’ to his friends) started things off by restating his well-known message ‘whatever it takes’ from a few years ago.  He added the details ‘We are ready to use all instruments that are necessary to fulfill the mandate.’  Essentially those tools – each based on the perceived degree of risk to the economy – would include: 1) extending the time frame before the next interest-rate increase, 2) cutting the already negative rates, or 3) beginning another round of bond buying (QE). The result, as expected, was that global bond yields continued their drops, and bond values went up. Stretch your memory back seven years when Portugal’s 10-year bond was yielding 16.5% (!). Compare that to Germany’s 10-year yield plummet to -0.3% for a new low.  Amazing!

Here at home Fed chief Powell continued the action by giving a message to the markets that was as dovish as could be imagined without actually cutting rates (which no one expected anyway).  From the WSJ’s Greg Ip ‘Chairman Jerome Powell said the Fed was prepared to react aggressively to any weakness, drawing from research that says when rates are historically low officials should move faster and sooner because they have less room to cut’.  In my opinion this is important because the Fed has historically been slow to act and has often been accused of being behind the curve — i.e. ‘rear-view mirror’ actions (which may have been some of the reason for the market’s freak-out in December).

The big bottom line here is that the Fed has continued to move away from its stance of seven months ago.  They first chose to become ‘patient’, and now have implied that a rate cut is on tap as soon as next month.

So, yes, we have China, political rhetoric as usual and the rest of the scary headlines.  However, for now, when global central bankers cut rates, it’s a pretty strong clue that markets like it!  I believe that the market again has a central banker breeze at its back and the resultant market path of least resistance is up.  (As Powell said: ‘Is that ‘crystal clear’?)

Ron’s Market Minute – May the Fourth Be with You

Given the headline-driven markets and the G-20 meeting this week (and Sunday’s meeting of Trump and Xi) we’ve chosen to ignore this week’s market gyrations.

Many people who know me personally believe that my blood runs yellow and green – a condition that I may have had since my youth when I lived about a half hour away from the Green Bay Packers Stadium. There is also some red, white, and blue in there as well. Those of you who share my love of our country, and also perhaps my love of country music, might enjoy this music video of Johnny Cash’s version of the ‘Ragged Old Flag’.

Happy Fourth of July from all of us at Denk Strategic Wealth Partners!

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk

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*The indices are representative of domestic markets and include the average performance of groups of widely held common stocks. Individuals cannot invest directly in any index and unlike investments, indices do not incur management fees, charges, or expenses, therefore specific index returns will be higher. Past performance is not indicative of future results.