Jay Powell blinks: markets rally after Fed Chair's dovish comments

(15 January 2019) Financial markets are looking a bit more stable now after the Federal Reserve seemed to dial back its commitment to higher interest rates and quantitative tightening.  Stocks have rallied strongly following the dovish comments from Fed Chair Jay Powell which reduced the likelihood of more rate hikes in 2019.   This bullish investor reaction was another reminder how dependent the stock market is on these historically low interest rates and how captive the Fed is to the stock market.  

Because the stock market is so deeply intertwined with the US and global economy, any major decline will force the Fed's hand.  The "wealth effect" requires the Fed to support stock prices in order to improve sentiment and thereby encourage consumer spending.   After all, if consumers see the value of their 401k declining precipitously, they are less likely to spend their money.  This essentially broadens the mandate of the Federal Reserve to include inflation, employment and the stock market.  The role of the stock market in creating the wealth effect was first promoted by Fed Chair Alan Greenspan in the 1990s under Clinton, and has deepened under Bernanke, Yellen and now Powell.  The Fed believes that 'what's good for Wall Street, is good for America.'

So can the Fed's low rates and QE-type money printing keep this 10-year bull market in stocks going indefinitely?  Anything is possible, of course, but it seems unlikely to continue for much longer.  Last week I highlighted some planetary factors which suggested that the market was due for another major swoon later this year.  A central feature of the next market decline is the rare triple conjunction of Saturn, Pluto and Ketu (i.e the South Lunar Node).  This malefic conjunction will begin to form starting in April or May and will be within range likely until October.  Saturn is often prominent in any major bear market declines and its alignment here with power-centric Pluto and unpredictable Ketu make negative outcomes more likely. 

Trouble at the Fed

Significantly, this pattern will also be prominent in the horoscope of the Federal Reserve (23 Dec 1913 6.02 p.m.).  We can see that very slow-moving Pluto is sitting on the 7th house cusp exactly opposite the Ascendant.  This transit will last through most of 2019.  This reflects the intensity and historical importance of the current economic circumstance for the Fed.  The Fed is charged with managing the withdrawal of its unprecedented monetary stimulus from the period after the 2008 meltdown without causing a crash.  Some critics have argued persuasively that the Fed's stimulus has simply created a new bubble of debt that is vulnerable to collapse once rates normalize and it sells off its balance sheet of QE assets.  Now it seems it can't raise rates back to its normal range or else stocks will tank and interest rates will spike since the market can no longer absorb debt without a demanding a significantly higher premium.  Therefore, the Fed may finally be well and truly trapped. 

But Powell's dovish statement on January 4th was just what the market wanted to hear and stocks have been rallying ever since.  The Sun and Pluto are there opposite the Ascendant ("coercive power in action") with Saturn waiting in the wings.  But the relative success of Powell's comments can be seen through the Jupiter-Mercury conjunction which is typically associated with "good news".  Also the conjunction of transiting Mars with the 10th house cusp (MC) is a reflection of Powell's decisive executive action to essentially walk back his rate hike from Dec 19th and reassure investors that money would remain cheap as long as necessary.  The 'Powell put' is alive and well. 

But the real problems with the Fed horoscope come in the spring.  Saturn is due to station at 26 Sagittarius in late April in an exact opposition to the Ascendant (25 Gemini) and to natal Mars (26 Gemini).  This is a very tense alignment which virtually assures major economic difficulty starting in the spring.  This is not to say that the stock market has to decline in April.  It may be delayed somewhat or even manifest a bit earlier.  But it does underline the importance of that time window for the Fed.  Powell and Co. will likely be scrambling to stay on top of the economy and the markets.  The presence of Saturn here means they will have to make some very tough and painful decisions.  (e.g. emergency rate cut to combat geopolitical uncertainty, unexpected rate hike to fight sudden inflationary spike, etc.)

While Saturn is basically just sitting there opposite the Ascendant-Mars, Ketu will pass over Saturn in May.  Thus, Rahu (the North Lunar Node) will conjoin the Ascendant and Mars and thus reflect a chaotic and potentially explosive financial situation. 

To top it off, Mars is due to transit over the Ascendant in mid-June.  It is really one of the most malefic planetary combinations I've ever seen in a chart.  Who knows, maybe Trump will fire Powell by this time.  Or the Fed will be forced into a corner and have start buying stocks and bonds directly to prop up the market, just as Japan has had to do for many years.  It definitely looks pretty nasty.

Weekly market forecast

This week looks more vulnerable to declines.  The Full Moon on Sunday Jan 20 is also a lunar eclipse which could introduce some volatility this week.  Also, Saturn (19 Sagittarius) is fast approaching its crucial 20th degree of Sagittarius.  This degree is often implicated in declines since it is in exact alignment with the Ascendant of the NYSE chart.  It is also in alignment with the Sun (20 Aquarius) in the S&P 500 horoscope.   Since Saturn is a bearish planet, its exact aspects tend to coincide with pullbacks and declines.  Saturn also forms a tense minor aspect with Uranus here which may further indicate declines.  Neptune is already at 20 degrees of Leo, so the Saturn-Neptune duo is not generally not helpful for stock market rallies. 

Jupiter is conjunct Venus and fairly close to 20 degrees of Scorpio so that may offer some relief.  I suspect it could come next week after the lunar eclipse.  We shall see. 

For more detailed market analysis, please check out my weekly subscriber newsletter.  It is published every Saturday and covers the US and Indian stock markets, as well as currencies, gold and oil.