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Markets Just Got The Green Light To Go Much Higher Through The End Of The Year
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To investors,
Uncertainty is a cancer that can spread fear through a market. It can kill optimism quickly because as the uncertainty mounts, the flow of capital slows and asset prices lose momentum. It is this loss of momentum that becomes dangerous to bull markets.
Thankfully, we got extreme clarity yesterday on two major topics that investors care about: interest rates and our China trade relationship.
First, Jerome Powell and the Federal Reserve cut interest rates 25 basis points during the conclusion of this week’s meeting. The decision was not a surprise, but some of Powell’s commentary around the decision was noteworthy.
The Fed Chairman still believes there is potential risk to rising inflation, which frankly has failed to show up as he previously predicted, and he believes there is continued pressure on the labor market. His exact words were “risks to inflation are tilted to the upside, and risks to employment to the downside.”
That is central banker speak for “we are watching the market but there is not explicit problem I can point to and scare you with at the moment.”
At another point Jerome Powell was asked about the potential of a bubble in AI and the comparison to the 1999 tech boom. His answer was interesting:
Business models. Revenue. Profits. You know, things that real companies have! This rational take from the leading central banker will hopefully quell some of the doomsday predictions of a massive bubble in AI.
So the good news coming out of the Fed press conference yesterday is that rates were cut once again. The 25 basis points decrease brings cheaper capital into the market, incentivized more research and development in the corporate sector, and should result in asset prices continuing to go higher over the coming weeks.
But the interest rate cut was not the only clarity we received yesterday.
Last night we got word from President Trump’s visit to Asia that the United States has struck an agreement with China. This agreement is widely being reported as a tariff truce that is aimed at easing trade barriers the two countries have put on each other in recent months. Given the fact that tariffs were not fully removed, I don’t know if I would call it a truce. I would likely call this something more akin to a de-escalation when it comes to tariffs.
Regardless of the specific wording, the important thing is that an agreement has been reached. Both the United States and China can claim victory in the outcome, which is an important component too.
So what exactly was agreed to?
Bloomberg explains the main components of this agreement include the US cutting tariffs on Chinese goods related to fentanyl down to 10%, China will buy a “tremendous amounts” of US soybeans and other farm goods, China will pause sweeping controls on rare earth exports, the US will roll back expansion of restrictions on Chinese companies, the US will extend a pause on some reciprocal tariffs for a year, and China will work with the US to resolve issues related to TikTok.
It seems that both sides gave something in the negotiation, which is how a good deal gets done. Everyone has to walk away feeling like they could have gotten a slightly better deal. But the leaders of both cou
Published on 1 week ago