The Powell “put” is driving the market

"The head of the Fed, Jerome Powell, had previously stuck to the line that short-term interest rates in the US were "well below" the natural interest rate that characterises a neutral monetary policy. Due to sharply declining inflation expectations, Powell changed his rhetoric to short-term interest rates being "just below" the natural rate. This caused investors to breathe a sigh of relief and sent stocks up sharply in the last days of the month."

So writes Chief Strategist at Sparinvest David Bakkegaard Karsbøl in his latest monthly comment.

"Generally speaking, the volatility index (VIX) is staying high. In the first days of December, we saw the VIX bounce back to over 25. All in all, one can say that the idea that the Fed has issued a put option to share investors that protects them from falling markets can be supported by Powell's actions. Where it used to be Greenspan, Bernanke and Yellen who had to put their names to an imaginary put-option like this, now it is Powell."

Other topics in the monthly comment:

  • The arrest of Meng, the daughter of the founder of Huawei and how this has naturally thrown sand in the negotiations between China and US. 
  • A storm on the investments strategies like Value, Momentum and Small Cap.The fact that these factors have performed so historically badly leads the Chief Strategist to believe that it is a passing phenomenon, and the market will start to see a greater yield from the combination of Value and Momentum again in a few months. 
  • Stock allocation where David Bakkegaard Karsbøl maintains his recommendation from the previous months, which is to maintain a neutral share allocation in relation to long-term target allocation.

Read the full comment - click here


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