The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Criminal investigation
Last night we learned that the Department of Justice was launching a grand jury investigation of Chairman Powell. Futures fell immediately and markets were troubled by the news. This appears to be a politically motivated investigation and as details emerge, it does not seem reasonable that Chairman Powell committed the crimes cited. The S&P opened down about 30 points and rallied to flat by 11 AM. The index added some small gains in the afternoon. Yields climbed a couple bips across the curve and the probability of a Fed rate cut on January 28th is now just 5%.
Markets shrugged off the unprecedented news out of Washington. This is both surprising and not surprising. Criminally investigating a Central Bank Chairman because you don’t like his interest rate policies is a banana republic news item. It raises the possibility of a non-independent central bank materially. This is a serious concern to the Treasury market, and by extension, all other markets.
However markets didn’t worry much, or for long. Investors immediately understood the danger of the news but quickly realized that the DOJ investigation wouldn’t go anywhere and/or change anything. Perhaps markets have supreme faith in the US institutions themselves, that they cannot be manipulated, even by the President, to destroy what they were established for. Perhaps markets just characterized this as a typical Trump attack, although it is more serious than the usual name-calling.
We don’t know *why* markets moved on from this news so quickly but they did. And all we can do is presume that the markets have fairly discounted these events and their likely outcomes.
Moving on, earnings season is the business-as-usual topic on the front burner. Of the S&P 500 constituents, the big banks kick off the season tomorrow. Bank of New York and JP Morgan announce in the early morning. The preannouncement period has been quiet, which suggests disappointments will be few and far between. There’s no hype or excitement regarding the coming earnings season yet but that will change if some early results are big beats.
Investors are quite resilient at this moment in time and I expect them to chase offers higher if earnings results gives them a nice positive narrative to embrace.
See you tomorrow.
-Mike
Visdom Market Commentary
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