Is Jerome Powell the Secret to a Strong Stock Market?

Last Friday the Dow Jones rebounded from a horrendous Thursday session to notch a nearly 750-point gain. The reason for that? As with previous rallies over the past few months, it was comments made by Federal Reserve Chairman Jerome “Jay” Powell. Powell, who has come under significant pressure from President Trump recently to pause the Fed’s rate hikes or even to start cutting rates again, made some more comments that were perceived to be dovish. Among those were comments that the Fed would not hesitate to pause its balance sheet reduction if it were deemed to be tightening monetary policy too fast, and his reiteration that the Fed is not on any sort of preset path but is instead listening to markets when it decides on policy.

It’s a pretty sad commentary on the strength of the US economy that it takes some reassuring words on the part of the central bank chairman to lift stock markets. What happened to the supposed strength of the economy, the growth in jobs and wages, and the effect of tax cuts on business performance? More and more the stock market rallies we’re seeing are based only on hopes and dreams, with little substance behind them.

That should be worrying for most investors, and especially for those nearing retirement. Stock markets that are dependent on dovish words from a central bank chairman, that are reliant on cheap money and easy credit for continued growth are markets that are a dangerous and risky investment. It should be clear that the Fed won’t return to the days of quantitative easing and zero interest rates, so the stock market bubble has run its course. Investors need to take stock of that and protect their portfolios accordingly.

Powell’s attempts to reassure markets resemble those of Ben Bernanke in the aftermath of the 2008 financial crisis and onward. When central bankers know that their policies can’t help the economy they attempt to engage in “expectation management” – talking a good game so that markets and investors think things are going to rebound, even if the central bank knows that no good news is on the horizon. That’s where we find ourselves today, with the Fed desperate to keep markets performing well lest it come under even more pressure from President Trump.

With all of that in mind, investors need to prepare for tough times ahead. Stocks won’t provide the gains this year that they have over the past couple of years, so those wanting to protect their assets and lock in their gains need to start looking to alternative investments such as gold. Gold outperforms stocks during bear markets, and with every indication that we’re on the cusp of a major stock market decline it’s crucial that investors take a look at gold as soon as possible to diversify their portfolios and eliminate the risk of weak equity markets wiping out their savings.