The Fed and market moves

US markets have rallied back pretty well at the start of this year, with the S&P500 up over 10% it seems that there is a nice comeback to the market sell-off we had in December. Earnings were not as stellar as in the past so that can't account for the upswing, and trade tensions, Brexit, and a global slowdown are still on the table. The one factor that seems to be putting the market on an upward trend is the change in Fed policy. Since the start of the year the Fed has been pushing a message of patience and concern over the rate of increases that it was set to make in 2019. Since the start of December the probability of an increase in 2019 virtually disappeared, in fact a rate cut of 25 basis points is starting to creep back on the table. 

Source: CME group

The concern about this current situation is that there is a great emphasis on the actual news of the Fed taking it slower in its tightening policy but the events that are causing the concern are still being priced in as remote. The global slowdown, trade tensions, and Brexit have yet to materialize into real crisis. If you look at the economic data coming out of the US it is still surprising to the upside. This is giving the impression of a strong economy with the Fed easing. These two issues are not going to remain intact for long. The concerns facing the global economy are going to start affecting the US proving the Fed early to react, of the US will in fact weather all of these global concerns somehow at which time the Fed will most likely reverse their tone rather quickly.