This Fed rate cut could signal the stock market’s peak, says investment manager Michael O'Sullivan:
It is a sign of the times that both investors and politicians crave a rate cut from the Federal Reserve.
Now the risk is that markets’ obsession with the Fed may turn sour, and that 3,000 for the S&P 500 index SPX, -0.26% marks the top of the market.The first is that President Trump is cheapening the Fed with a barrage of tweets and insults. In the absence of a firm rebuttal against political pressure, the Trump tweets increasingly hamper the Fed. They are a distraction for policy makers and of course, begin to compromise the independence of the Fed.
For the Fed to become any more dovish would require a sharp dip in U.S. economic data. It is hard to think that equity and credit markets could ignore the negative implications of this.There is a very respectable school of thought that says it is better to let the economy slow now, let some market and financial excesses unwind, with a view to lengthening the business cycle. Indeed, much of the economic data in the U.S. is “OK”.
More dovish voices will point to the many risks from abroad. But the Fed can do little to resolve these. Hong Kong is a risk to the U.S. because a crisis there could push up the dollar, lead to a round of de-risking internationally, and fuel fears of a macro shock across Asia.
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