Pro Perspectives 11/1/19

November 1, 2019

As we enter November, we continue to track the path of this 1995 comparison we looked at to begin the year. 

Remember, back in ’94, the Fed was overly aggressive in raising rates and choked off the momentum of economic recovery.  That left a world where the best producing major asset class was cash.  By 1995, they were forced to reverse course on the interest rate path (from tightening to easing).  And that unleashed a boom in stocks and the economy over the next four years.

Last year (2018) looked a lot like 1994.  With that, back in December, we laid out this scenario for a repeat of 1995 — and we’re getting it.

Like in 1995, the Fed has reversed course on rates.  And like in 1995, stocks are up big.  But we have the ingredients in place to see an even bigger finish into the end of the year.  Remember, in ’95 stocks did 36%.  Stocks finish today up 22%, with two months remaining in the year.

And we now have the Fed back in defensive mode.  They have reversed a shrinking balance sheet by $200 billion already, and have told us they will pump nearly half a trillion dollars worth of liquidity into the global economy by the second quarter.   And the ECB has started buying assets again, as of today.

As I’ve said, while most have been looking for the next recession around the corner, by early next year, they may find themselves in an economic boom instead.