You Can’t Get Any Closer to a Fed Leak Than This…

Almost 26 years ago, the movie “The Firm” was released. Based on a John Grisham novel, it is the story of a young lawyer from a tough upbringing who gets sucked into the employ of a law firm with illegal dealings and hunger for power and money.

The film was released when Grisham was at the height of his popularity. At the time, the top six paperback books by sales in the country were split equally between him and Michael Crichton. The film was a smash hit, and would be the first of many Grisham novels translated onto the silver screen.

One of the key things that made Grisham’s novels so compelling was that the author was a lawyer who wasn’t afraid to show his audience the inner workings of the law profession – and they found it fascinating.

Speaking of getting a look behind the curtain, on June 25th, iconic “Sharks” Robert Herjavec and Neil Patel will reveal the greatest wealth generator the world has ever seen, including two exclusive deals during the event. Attendance is free, but you’ll need to click here to RSVP, while there are still open spots. We will also keep you updated and/or posted on our latest and exciting projects.

I was thinking about that same “inner workings” angle when I was sitting on set as a weekly analyst on Fox Business Network’s Varney & Co. Tuesday before last. I usually have a 10 minute spot at 9:30 on Tuesday mornings, to comment on the opening market moves and the top financial news of the day. On that Tuesday, things were quite different. There was to be a 25 to 30 minute press conference with President Trump and England’s Prime Minister Theresa May, and early that morning The Fed made a surprise announcement that they would release a statement at 9:55.

So instead of my usual 10 minute spot, I was in the studio from 9am to 10am to discuss the effects of the press conference and the Fed statement on the markets, as time allowed.

After the press conference, we had some normal banter and coverage of market news while waiting for the Fed press release to come out. At roughly 9:50, Jackie DeAngelis, a reporter who moved from CNBC to Fox Business in the last couple of months, came in holding a single sheet of paper. She arrived off-camera, and during a commercial break, she was almost persona non-grata. Professional discretion dictated that she not talk about what the sheet read.

At 9:55 sharp, Jackie read the announcement.

The Fed Has the Market’s Back

Fed Chairman Powell said in the statement the Fed would “Act as appropriate” to sustain expansion. I said on air immediately after, when asked for my reaction, that the Fed had just said they would “backstop” the market if there was further trouble from the trade negotiations.

I noted that stock prices initially had a muted reaction because this news was already “priced in” – meaning that this bullish news was anticipated, and the Dow was already up 200 points when the announcement was made. Ms. Deangelis confirmed this, saying that the statement was “embargoed” meaning pre-delivered to the press for a uniform release time.

Something as sensitive as a Fed release is bound to get leaked, so the market had already taken that into account. Earlier this week, I got to talk with Jackie about the timing of this exact press release. She told me that she didn’t have it in hand until 9:50.

The Little Assurance That Grew

Chair Powell’s “Act as appropriate” ended up turning into a modest version of European Central Bank leader Mario Draghi’s “whatever it takes” speech of July 2012. Most analysts consider the Fed backstop and the positive trade news out of Mexico to be the main and secondary driving forces for the markets’ strong push up since the June 3 lows.

 

The other important news is that President Trump of the U.S. and President Xi of China will both be in Japan for the G20 economic summit on June 28-29, and both have given indicaitons that they will talk about the trade troubles then. This has put the main brunt of uncertainty on delay while we wait for that important meeting.

So the negative impact of China / U.S. trade troubles on the Trump Growth narrative has temporarily been moderated by the re-emergence of the Fed accommodative monetary policy narrative, pushing the market back up to within 2% of the all-time highs. And that sends us into the new week with cautious optimism. While wary of the potential impact of the next negotiating ploy from the U.S. or China, market internals are still bullish with the number of stocks partipating in the up move of the last 8 – 9 days being overwhelmingly positive.

That sets us up to make money on both bullish plays in general, and fast moving bearish plays for the weakest stocks during the pullback. Expect more volatility (up and down swings) with a mildly positive slant heading into the June 28-29 G20 summit.

Great trading and God bless you,

D.R. Barton, Jr.

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