Fed Pours Cold Water On Rally, But New Trade Deals Offer Support

Equities took a bit of a breather last week as the Fed poured a little cold water on the recent rally.

The Fed kept rates unchanged at the conclusion of last week's meeting. However, their official statement noted "risks of higher unemployment and higher inflation have risen." That left equities in a bit of a trading range as investors try to interpret the Fed's next move. It's important to note that inflation is running below its historical average and isn't showing signs of rising materially. In addition, the unemployment rate has been range-bound for the better part of a year. Meanwhile, the Yield Curve of treasury bonds is well below normal range from 1yr Treasuries to 7yr Treasuries as the bond market is telling the Fed to cut rates.

Last week, the White House announced a trade deal with the U.K., leading to 10% tariffs on U.K. goods and a reduction in tariffs on U.S. goods from 5.1% to 1.8%.

Over the weekend, a joint statement from the U.S. and China showed agreement on a 90-day truce in the trade war between the two countries. The U.S. will reduce levies on Chinese goods from 145% to 30%, while China reduces tariffs on U.S. goods from 125% to 10%. This has been well received by the market in overnight futures thus far. Volatility has dropped significantly over the past few weeks, with the VIX Index falling more than 50% from the April 7th peak and the index nearing the 19.5 historical average level. The investing moniker "Sell in May and Go Away" may run up against the Zweig Breadth Thrust this year. When the Thrust indicator triggers between November and April, the May through October gains are 4 times greater than without the indicator having been triggered.

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