By now, investors have figured out that economic growth has slowed substantially. Even members of the Federal Reserve have figured this out, and have altered policy appropriately. Newly dovish Fed pronouncements now suggest no more rate hikes in 2019, and no more balance sheet activity, outside of normal policy moves, after September. This, in recent days, has spooked the Markets into believing that the Fed may know something more about the economic slowing than they do.

But someone once described Fed actions as “a drunk driver, driving ditch to ditch along alternate sides of the road”, and this does seem apropos. After being late to recognize the macroeconomic changes last year, the Fed raised rates and induced the severe fourth quarter Market correction. Similarly, having recognized this mistake, policymakers took much more dovish stance, and have since, catalyzed the surprisingly strong Market rebound thus far first quarter.

Company earnings performances, and associated outlooks, confirmed the slowing. Many firms predicting that the March quarter of 2019 would mark the bottom of this earnings cycle. All the while, equity prices raced ahead. So where do we go from here?

The shape of the recovery will determine that. Will June performance be sequentially flat, up slightly, or improve more dramatically? Consumer spending has been sluggish of late (it is tax season after all), and trade war fears have caused much consternation (and in some instances inventory issues as companies order ahead to avoid tariff increases).

Our bet is that some of these issues will be resolved allowing for some improvement in June. And this, in combination with the innovation cycle propelling leading companies may be enough to give investors a measure of confidence. After a brief period of consolidation, the Market should begin to reflect this confidence.

Cheers!

Bruce