The 2020 Rally:
The Federal Reserve is lowering short term rates and adding liquidity through Repos and Treasury Bill purchases. Recent months’ potential black swans like the Hong Kong Riots, Brexit, the US-China trade negotiations, the Presidential impeachment inquiry and the global industrial slowdown have all de-escalated. If trade frictions, which have reduced corporate capital spending, are reduced through credible trade agreements with China, the EU and through the USMCA, a recovery in earnings and the industrial economy should ensue. Further, if centrist Democratic candidates like Michael Bloomberg gain traction with voters, presidential elections risks will decline. If these improving monetary, economic, international and political factors, combine with improving market technical and momentum factors, a 2020 US equity market rally could make S&P 5905 seem more plausible.
The Fed Risk Premium chart combination below shows the red earnings line in the second panel turning up. With S&P 500 earnings turning up, the earnings downturn risk that triggered the major market peaks of 2000 and 2007-9 is removed and a more material equity market advance could develop.
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