Markets cling to mixed news

Yesterday we saw global markets shocked by the news of a slowdown in Apple sales in China. This potentially caused the flash crash in Yen currency pairs, markets to sell off globally, yields to drop, and Fed expectations to start pricing in a rate cut in 2019. This is a culmination of all the bad news of last year coming to a head. Bad times are still ahead for us.

Today, job numbers came out in the US way above the estimates that the markets expected. The Fed said that they would be more patient with monetary policy as they assess data. Market soared back today as the good data seems to negate the moves we have seen yesterday, along with the fears that a global slowdown is increasingly likely. 

What needs to be looked at through this chop is where the longer term trends are and how 'sticky' each data point is. The news by Apple (and other companies) about lower than estimated earnings in 2019 will not be a transitory event. Companies do not put out bad news of this sort if they feel the markets will turn around quickly and result in better earnings. As far as the Fed coming out to reassure markets they will be patient with the data, while it is taken as good news in the market (the Fed put trades are being reinforced) the Fed would only act towards easing as the data comes out confirming what companies like Apple are warning, a material slowdown in growth. The Fed put is great for longer term buys, knowing there is some support as the economy slows, but still would come on a backdrop of lower US growth. The high jobs numbers are great for the economy and point to the US continuing to buck the trend of the rest of the world, however the stickiness of these numbers are not as reliable over longer term horizons. Companies hire cautiously and close positions hastily as the economy sours. 

For your portfolio these times still present opportunities as a decisive direction is still unclear. Knowing there is a backstop of the Fed softening its stance on rate increases, the dollar should not see as intense of a rally this year as we did in 2018. This helps in the Emerging market space as well as commodities (trade wars will still determine the majority of movement near term). The severe sell-off in the developed markets are providing attractive yields for longer term value plays and aligning valuations where we have seen stocks get expensive.