The stock market has had a good start to 2019. The S&P 500 rose 7.9 percent in January, its best January since 1987, and edged up another 0.1 percent on the first day of February.
According to CNBC's Jim Cramer, the reason for the strong performance was Federal Reserve chairman Jerome Powell.
Cramer pointed out that in October 2018, Powell had suggested that interest rate hikes still had some way to go.
However, on 4 January, Powell announced a reversal, telling the American Economic Association that the Fed “will be patient” with its rate increases and take a more data-dependent approach.
John Hussman, president of Hussman Investment Trust, suggested in his latest commentary that Powell's reversal actually occurred on 28 November, when he described the position of rates as “just below” neutral.
In any case, Hussman thinks that investors may have overreacted to the reversal.
“As I’ve demonstrated previously, even a shift to Fed easing typically has no benefit for stocks, aside from a short-lived knee-jerk reaction, unless market internals indicate that investors are inclined toward speculation,” he wrote.
Hussman noted that “the Fed eased persistently and aggressively throughout the entire 2000-2002 and 2007-2009 market collapses, to no avail”.
Hussman added that “with valuations that continue to rival the 2000 and 1929 peaks” and measures of market internals that “remain unfavorable”, the market faces a potential “trap door” situation and “an environment that’s permissive of steep losses”.
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