Updated: May 6, 2021
Reasons for the recovery since December 2018 meltdown?
There are 3 reasons for this sudden recovery, they are:
1) End of partial US government shut down
2) New hope for trade war with China
3) Fed said to stop rising interest rate
An unprecedented last quarter meltdown of 2018, have we forgotten it?
The current rally started since 2009 after Lehman Crisis, unknowingly it has lasted 10 years. Along the way there were many minor corrections and the most intense was between October and December, it was -19%.
Market volatility started in 2018, more volatility ahead?
On the first day of February 2018, I published "3 key reasons: Time to get cautious on the US equities", shortly later the market continued it's massive selling, it was a very unusual selling because from it's peak to the trough, it took 11 business day for the market to collapse 3,596 or -13.5%. This was a magnitude that it should not be ignored within such a short period of time. Many blame it on North Korea tension and some blame it on the start of US trade war with the world.
Key reason for this trigger?
Looking deeper, February 2018 was also the time where Jerome Powell became the FED chairman. His stance on the direction on US interest rate had always been hawkish until December 2018. In his term, he has announced for 4 hikes, in March, June, September and December last year.
On the first day of November 2018, I published "Potential double-top for US markets", then the price was trading at 25,115.76, shortly, in anticipation of more rate hikes, the market continued to make south to 21,712 and reached the low on 26th December.
The 2018 market jittery ended when Jerome Powell suddenly started suggesting no more rate hike.
More and greater volatility ahead?
We could observed that 2018 volatility was spooked by interest rate fear, we will have to keep watch for the rest of this decade, any mention of more rate hikes by the Fed chairman, it will spook the market again.
No more rate hike, is it Trump or is it really because of the numbers?
What is Gary Cohn concern about?
It's interesting because usually the chair of the FED as we know is wildly independent, but it was a case of the President pretty much came out and said to Jerome Powell the chair the FED Reserve: "I would really prefer that you stop doing what you're doing and stop talking about raising interest rates."
Should the FED work that way?
I'm going to hope it wasn't. Hope it was I'm going to hope that Jerome Powell and the FED governors in seeing all of the data they see... I mean they got more PhD anyone else, they talked to all the companies in the world in the United States and the regional FED system is designed to bring them real-time data from the local economy, I surely hope and I almost pray that what the FED did was in reaction to what they were seeing in the data that they felt that there was an actual slowing of the economy and they were in the wrong place.
Gary Cohn served as the 11th Director of the National Economic Council and was the chief economic advisor to President Donald Trump from 2017 to 2018. He was the president and chief operating officer of Goldman Sachs from 2006 to 2017.
Cohn was one of the most influential voices in the Trump administration.
Source: Freakonomics radio