On Equities – Do as they say, not as they do? On Bond Yields – some things from the FOMC minutes

Goldman Sachs computer model warns a bear market is near, but the firm’s analysts don’t believe it (read here). So, if a bear market arrives – they were right (well their computer model was), no bear market – they were still right.

JP Morgan has said investors are ‘overreacting’ and investors should buy the market dip for a big rally ahead (read here). How big? 13%. Which would just about take us back to the highs the market hit at the end of January. Will they do as they say? Who knows.

Meanwhile, 10-year US bond yields have fallen 12 bps (to 2.78%) in the past week since the 0.25% Federal Funds rate target increase. As the Federal Reserve pares back its bond holdings, the US government is bringing more to market, yet yields have been falling.

Here are some interesting things from the FOMC releases (text in italics are our comments),

Federal funds rate range for 2020 is 1.6% to 4.9%. Probably one of the biggest range (if not the biggest). On a wide enough range, the probability of being right is much better.

The share of workers who were employed part time for economic reasons was little changed in December and was close to its pre-recession level. Is that keeping unemployment figures low?

Many participants noted that financial conditions had eased significantly over the intermeeting period; these participants generally viewed the economic effects of the decline in the dollar and the rise in equity prices as more than offsetting the effects of the increase in nominal Treasury yields. One participant reported that financial market contacts did not see the relatively flat slope of the yield curve as signalling an increased risk of recession. A few others judged that it would be important to continue to monitor the effects of policy firming on the slope of the yield curve, noting the strong association between past yield curve inversions and recessions. Fewer rate hikes then? To be fair the Federal Reserve is in a rare position – it can cut rates if it needs to.

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