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It is my contention that the decline in stock index futures last December took place because the market correctly foresaw an imminent slowdown in the global economy. The market “knew” the global economy would stall in 2019 and corporate earnings growth  aggressive Federal Reserve in 2019, with predications of three more fed funds rate hikes in 2019, could dim the economic outlook even further.


Chart 2: June S&P 500 Futures - Weekly


Source: Chart from QST


So why are stock index futures so strong this year when most of the economic news has  1991 with the S&P 500 up over 11%, which more than made up for the over 9% drop in the 


MOSTLY BEARISH NEWS BEING IGNORED


  market performance has been good.


Could it be that investors see a resolution to the U.S.-China trade dispute? This is  could there be other bullish factors at work here, something very powerful, possibly a fundamental that dominates in the long run? I think there is. Could it be that the market is correctly sensing that the world’s central banks are moving toward accommodation, especially the European Central Bank and the Bank of Japan? Even the Federal Reserve has pivoted after raising rates in December and now is making it clear that it’s willing to pause from hiking rates and will monitor incoming economic data. Financial futures markets, while predicting the Federal Open Market Committee will keep its fed funds rate on hold this year, are showing there is a relatively small, but increasing probability that the FOMC could lower its key interest rate in 2019.


Stock index futures have moved higher in spite of the earnings reporting period in January and February that showed a slower rate of corporate earnings growth. Ironically, the reduced rate of global economic expansion is causing the “Global Central Bank” to move toward accommodation this year, or at least not become more restrictive, which in turn, will likely be the catalyst for higher prices for stock index futures.


Alan Bush


E: alan.bush@admis.com T: 001 312 242 7911


19 | ADMISI - The Ghost In The Machine | March/April 2019


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