Have you ever felt like things are looking "drawish"?

Not even sure what the word means?

Drawish is a technical term in a chess match where the pieces on the board are deemed likely to end in a draw. It also described — amazingly — each of the first 12 insanely exhilarating matches of regulation for the 2018 World Chess Championship between reigning champion Magnus Carlsen and challenger Fabiano Caruana, who was trying to become the first American world champion since Bobby Fischer in 1972. This was the only time in the history of the world chess championship that all the regulation games have been drawn. Carlsen (whom we wrote about here in the past) finally won in the rapid chess tie-breaker round and kept his crown.

Coincidentally, there were two market-moving events recently that, to us, look kinda drawish!

The first was Federal Reserve Bank Chairman Jerome Powell's comment in a speech last week when he said interest rates "remain just below the broad range of estimates of the level that would be neutral for the economy." The simple interpretation of this seemingly innocuous comment is that the Fed may halt or slow the pace of short-term interest rate increases in 2019 compared to what most market participants were expecting. This reduces the chances the Fed makes a monetary policy mistake by tightening financial conditions too much, too fast, or both and sending the economy into recession.

We think it is drawish because the economic future is uncertain, and Powell has said repeatedly in the past the Fed will be "data dependent." He wants to wait for the next “match” and then make an informed decision. If the economic data comes in hot, the Fed most likely will react and raise interest rates more aggressively and vice versa.

The second event was the outcome of the international trade parlay between President Trump and Chinese President Xi Jinping at the recent G-20 meeting in Argentina. While both sides have claimed victory (sounds drawish to us!), the outcome was a stalemate from the trade tariff rhetoric for 90 days to negotiate longstanding trade disputes between the two countries. Time will tell.

Though both events were drawish from our perch, the equity market rallied immediately following both announcements, given how much of a bugaboo both issues have been all year. This may be as good as it is going to get for any hope of a “Santa Claus” rally this year … or perhaps we should call it a "mate-in-one" year-end rally?!

Contact Russell Moenich to learn more about this topic.
330.255.4330 | rmoenich@sequoia-financial.com


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