Summing Up The Week
Disney dominates the box office while Fed Chair Jerome Powell dominates the markets. Maybe the Infinity Stones could help turn market sentiment around with the snap of someone’s fingers? They’ll need to get them from Powell, first.
Let’s check out the news that moved the markets this week…
Jerome Powell – Fed Chair and “Destroyer of Markets”
If Jerome Powell, Chairman of the Federal Reserve, had a superpower, it would be to destroy markets with a single word. CNBC reports that the Dow lost 150 points on Wednesday after Powell used the word “transitory” to describe the low inflation environment and not “persistent.”
And that wasn’t the end of it. The repercussions from Powell’s comments continued into Thursday with the Dow dropping another 120 points, reported CNBC.
The culprit for the mini-crash? Believe it or not, some traders thought the Federal Reserve Bank was seriously considering a cut to the interest rate this year – this month, in fact – and would lower the interest rate back below levels not seen since December 2018’s hike.
In fact, analysts believe that some traders don’t realize the Federal Reserve Bank is independent from the President and believed Trump’s tweets (see below) demanding a 1% rate cut meant Powell would do as he was commanded.
Obviously, they were wrong.
By describing the current inflation weakness as “transitory” and not “persistent,” Fed Chairman (and Destroyer of Markets) Jerome Powell dashed the hopes of traders everywhere who priced a rate cut into their forecasts, and the markets reacted accordingly selling off on Wednesday and continuing through Thursday.
Unemployment Rate: Lowest since 1969
The Nonfarm Payroll Report released on Friday showed the U.S. added 263,000 new jobs in April, beating expectations of 190,000, while unemployment fell to 3.6%, the lowest in nearly 50 years (since December 1969), reported CNBC on Friday.
Although this report is certainly good news for the economy, it gives Jerome Powell yet another reason not to cut rates, despite Trump’s request to do so.
Positive Private Payroll Report
Private payrolls grew by 275,000 in April, the biggest increase since July 2018 whjen they grew 284,000, reported CNBC on Wednesday.
Private payroll reports indicate that the U.S. economy continues to grow, despite economists expecting the number to grow only by 177,000. Once again, the report indicates a healthy economy, but could also provide ammunition for The Federal Reserve Bank to consider another hike to interest rates.
China Trade Deal Within Two Weeks?
Trade negotiations between countries are never a simple task, and the U.S.-China trade talks certainly prove this fact, however White House Chief of Staff Mick Mulvaney announced that the U.S. should know if a deal has been reached with China in the next two weeks, reported CNBC on Tuesday.
If a trade deal is struck between the two countries, that could be good news for the markets as the U.S. and China both benefit from each other’s commerce. However, if no trade deal is reached, the markets may be in for downside risk as investors will typically “price in” good news.
Either way, it looks like we’ll know what to do in two weeks… if Mulvaney is actually fully in-the-know on the situation.
Trump requests 1% rate cut from The Fed
Historically, the President doesn’t criticize the Federal Reserve publicly, but in a couple tweets on Tuesday, Trump called on The Fed for a 1% rate cut and more quantitative easing (QE) to stimulate the U.S. economy, reported CNBC.
Economists believe that a strong economy requires a substantial standard interest rate to limit the risk of inflation and ensure steady long-term growth. The U.S. continues to have a historically low interest rate of 2.5% with Trump suggesting the Fed cut the rate back down to 1.5% in order to make the economy “go up like a rocket.”
Critics to Trump’s request point out that an economy rising artificially from unnecessary rate cuts historically crashes spectacularly and that additional rate cuts could be detrimental to sustained long-term growth.
As an alternative to QE and rate cuts, the St. Louis Federal Reserve has been floating the idea of a repurchase facility which would allow banks to exchange treasury notes for reserves that some economists believe would result in an easing effect.
Avengers: Endgame solidifies Disney (DIS) domination
Disney’s (DIS) newest release from its Marvel Studios, Avengers: Endgame, blew the roof off the joint last weekend, breaking box-office records with a staggering $1.2 billion global opening weekend, as reported by CNBC on Sunday.
For long-term media/streaming investments, we think Disney is the #1 choice. In fact, we compared Disney and Netflix (NFLX) just a few weeks ago for long-term plays.
The success of Marvel Studios isn’t the only reason we love Disney, but an extra billion dollars over a weekend sure doesn’t hurt earnings any!
Next Week’s Gameplan
Many analysts, including Jim Cramer, believe that while the pullback we saw toward the end of the week was healthy, investors should free up some cash in case we see a bigger pullback that may provide buying opportunities.
With the Uber IPO coming soon and threatening to suck all the oxygen out of the markets, any negative news (trade talks breaking down, global economic concerns) could create a perfect storm resulting in a significant market dump.
Our own portfolios are weighted a little heavier in cash than normal as we sit on the sidelines and wait to see what the future brings.
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Bitcoin Price (in USD)
Bitcoin Price Action
Bitcoin’s price action has been undeniably bullish over the past few months. In fact, in the past week alone, Bitcoin once again broke through its old highs to set a new yearly high for 2019, hitting $5796.93 on Thursday, and, for the moment, seems to be holding the $5600 mark with Bitcoin’s current weekly low set at $4963.00, which the market saw more than a week ago on Wednesday, April 24.
Crypto in the News
The Media says, “The Bottom is In.”
If you’ve followed any investment – particularly cryptocurrency – for any amount of time, you may have learned that the media is often a contra-indicator. In other words, a wise strategy has previously been to do the opposite of what the media says to do.
Although maybe this time is different – maybe this time the media have it right – we tend to align ourselves with Mark Twain who said, “History doesn’t repeat itself, but it often rhymes.”
Although it’s true that no one made money not taking on risk, there’s also something to be said for waiting for a move to prove itself before taking action.
Where’s the 30-50% pullback?
For the past several weeks, we’ve continued to hold on to our thesis that, historically, Bitcoin always pulls back 30-50% after a move of this magnitude. However, in the past, that downside move typically happens within days of the upside move, not weeks.
What’s going on?
Some analysts believe Bitcoin has finally broken free from its Bear Market, and our charts seem to align with that theory. However, other analysts – particularly those who believe in Elliot Wave Theory (click here for Investopedia’s excellent primer) – think Bitcoin is in a Wave 4 cycle, meaning Bitcoin could re-test of its ~$3130 low before heading higher.
What do we think? Well, honestly – we have no idea.
As always, cryptocurrency is an incredibly speculative space – painfully so, at times – and we believe anyone interested in the space should take extreme care if putting money to work. As with all investments or speculation, only risk money you can afford to lose.