Can President Trump’s Tweets Beat the Fed’s Hikes and QT?

The Trump White House is currently on a collision course with the US Federal Reserve (the Fed).

First a little background.

The Trump administration has “branded” the stock market as part of its success story. President Trump himself has tweeted on the subject more than 20 times. And Secretary of the Treasury Steve Mnuchin has even stated publicly that the Trump White House views the stock market as a “report card.”

Put simply, the White House wants stocks to be as high as possible.

On the other hand, the Fed has made it clear that it will be focusing on the real economy as opposed to the financial markets. New Fed Chair Jerome Powell has emphasized this approach in multiple speeches and Q&A sessions. He has even explicitly stated that some sectors of the stock market are “overvalued” (an extraordinary statement for a Fed Chair).

With that in mind, the Fed is embarking on an AGGRESSIVE tightening schedule, having already raised interest rates SEVEN times, with an additional five hikes planned in the next 18 months.

At the same time, the Fed is pursuing Quantitative Tightening (QT) in a hope to shrink its mammoth $4.4 trillion balance sheet. QT started at a pace of $10 billion per month. It increases to $30 billion per month in April. And it’s increasing to $50 billion per month this month (July)

ALL of this is VERY stock market negative.

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In the short-term, President Trump’s tweets and verbal interventions from cabinet officials can induce a rally in stocks… but it is the Fed that will determine where the markets are heading. It is not coincidence that stocks peaked before QT hit $30 billion per month and have since struggled to reclaim their former highs (despite MULTIPLE efforts by Trump admin officials to “talk up the markets”).

What does this all mean?

The Trump White House and the Fed are on a collision course. And truth be told, unless the Fed reverses course, stocks will drop, and drop HARD.

How hard?

The current downside target is in the 2,300-2,4500 range on the S&P 500.

The time to prepare for this is NOW before the carnage hits.

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Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

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Opinions and estimates expressed on this website constitute Phoenix Capital Research's judgment as of the date appearing on the opinion or estimate and are subject to change without notice. This information may not reflect events occurring after the date or time of publication. Phoenix Capital Research is not obligated to continue to offer information or opinions regarding any security, instrument or service. 

Information has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. Phoenix Capital Research and its officers, directors, employees, agents and/or affiliates may have executed, or may in the future execute, transactions in any of the securities or derivatives of any securities discussed on this email. 

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