Is Trump successful his attempts to pump the stock market to the maximum? In a way, he did succeed in this. All the time he pushed Fed to reduce rates so as to support the market and economy. Forcing Fed to ease its monetary policy was probably one of the reasons why he imposed more tariffs. Even though he kept criticizing Fed for not easing its policy enough while repeatedly defending his steps, he reached what he intended.
With Trump’s constant pressure of imposed duties and Tweets, Fed really did ease rates similarly to QE. Without these steps, the stock market probably wouldn’t be at the current maximum. As the elections take place next year already, Trump wants trade agreement. There’s no real trade deal for now, yet the market responds well to negotiations. Even though some requirements were met, such as global support of Central Banks, stabilizing Brexit situation and some positive steps in trade war, there are still some risks present.
It’s unpredictable where the peak will be. The question is whether we are talking about the stock index S&P 500, the actual numbers, the level 3100 or 3300. However, it’s obvious already that economic indicators are worsening and the global growth is slowing down. Notwithstanding, positive GDP data in the US with its 1,9 percent which expected 1,6 percent, Fed decided to reduce rates by 25 points to the zone of 1.50 – 1.75 % after this week’s session. They refer to inflation which is sufficient according to some experts, and as such the Fed critics of rate cuts are appropriate.
We shouldn’t forget the yield curve invert of 2-year yield and 10-year Treasury note. Even though the inversion period in already over, we should still bear it in mind. Nevertheless, the trades can be content. Trump is likely to attempt to arrange trade deal to keep the market on the top. The following table depicts more data in a historical viewpoint. The table mentions state after inversion, the inversion top, the inversion top in percentage and so on. It’s obvious that past results can’t guarantee future or predict any possible crisis, yet they can help us gain an outlook on the issue.
About 7 months after the inversion markets noticed a new peak. A new peak is usually created within 2 or 3 months after inversion, yet sometimes it can take even 2 years. The range is quite wide. The index return shows quite good numbers in percent. The inverse curse can warn about changes despite the fact the percent can grow about tens of percent. The inversion was present on the market only few days, from 22nd August to 3rd September. The question is, whether even such a short period should be considered as inversion or not. Yet from that date, S&P 500 grew up in about 7-9 percent, that is a few percent from 11,5% median. Also, such a value is closer to 9,5% average. During the last anomaly on the market in December 2005, the market managed to reach 25% to its peak.
It’s obvious that past results can’t guarantee future or predict any possible crisis, yet they can help us gain an outlook on the issue and so on. On the other hand, it’s important to point out that QE stimuli was not similar to the previous ones. The fact supports market growth to some extent. The question is how the market will react during the instabilities in the future when Central Banks keep using the tool.
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