Summary
Central banks - mainly the Fed and the ECB - made a dovish pivot at the start of the year in response to the swoon in Q4 18. Whether they meant this to be a relatively modest shift or not, investors ran with the story.Within a few months, markets were bullying Powell into rate cuts and by September, and pricing-in rate cuts and QE by the ECB.In other words, the multiple-expanding support from a firm central bank put - perhaps even with a sprinkle of fiscal stimulus hopes - has reigned supreme in equities and driven yields lower, even as fundamentals have deteriorated.
Apologies in advance; it’s been too long since my latest report, mainly because I think observing markets has been a bit like listening to a broken record. To recap; central banks - mainly the Fed and the ECB - made a dovish pivot at the start of the year in response to the swoon in Q4 18. Whether they meant this to be a relatively modest shift or not, investors ran with the story. Within a few months, markets were bullying Powell into rate cuts and by September, and pricing-in rate cuts and QE by the ECB. In other words, the multiple-expanding support from a firm central bank put - perhaps even with a sprinkle of fiscal stimulus hopes - has reigned supreme in equities, and driven yields lower, even as fundamentals have deteriorated.Against this backdrop, the Fed and ECB have delivered, by and large, forcing markets to consider a shift in the Narrative that is now too persistent to ignore. I’d break it down into three separate themes.
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