Did a Leak From the Fed Save the Stock Market?

We begin today where we ended yesterday — confused — and dizzied.

Down some 400 points from yesterday’s start, the Dow Jones sank nearly 800 points by afternoon.

The stock market had been routed by renewed gunfire in the trade war.

Upon American “request,” Canadian police arrested the CFO of China’s largest telecommunications company at Vancouver airport.

Chinese officials denounced the arrest in thundering terms.

But just as stocks were spiraling late in the day, in came a hero atop a galloping horse, white in color… and he rescued the poor damsel.

A fevered rally was suddenly underway…

The Dow Jones clawed its way 100, 200, 300, 400 — 700 points higher — and more!

It nearly broke even when the closing whistle finally announced a halt.

As did the S&P. The Nasdaq even worked a 30-point gain.

But who was this galloping hero who turned a calamitous rout into near victory?

Who, indeed, was that masked man?

Today we rip the mask from his face… and expose his identity.

First we check in on the fair one he rescued yesterday…

We find her once again roped to the tracks, tears streaming from her eyes.

But no rescue was forthcoming today.

The Dow Jones closed the day down another 559 points.

The S&P sank another 63, while the Nasdaq endured a hellacious 219-point lacing.

Another dark villain was added to the rogue’s gallery today— but the employment market.

The November jobs report came issuing from the Department of Labor this morning.

Economists as a group expected 198,000 new jobs last month. But 155,000 was the actual figure.

A “miss,” that is.

The November unemployment rate nonetheless held at 3.7%.

Meantime, America’s pay envelopes were 0.2% thicker for the second consecutive month — slightly less than economists envisioned.

But to return to yesterday…

We come now to the identity of the lionheart who rode to yesterday’s rescue…

An unlikely hero, this fellow wears spats — not boots. He wields no six-gun — but a briefcase.

He answers to the name of Jerome Powell.

Late yesterday afternoon, when the stock market was slipping away… The Wall Street Journal dispatched the following communique:

Federal Reserve officials are considering whether to signal a new wait-and-see mentality after a likely interest rate increase at their meeting in December, which could slow down the pace of rate increases next year… They are becoming less sure how fast they will need to act or how far they will need to go and want to assess how the economy is holding up under moves they’ve already made.

The furious rally soon commenced.

The timing was… fortuitous.

At 4:02, colleague Dave Gonigam of our sister publication The 5 Min. Forecast wired us a note:

“Looks like a planned leak to the WSJ.”

More from Mr. Gonigam today:

Evidently the Journal is still the Fed’s preferred conduit for market-moving “authorized leaks,” even though reporter Jon Hilsenrath has moved into a managerial role, replaced on the Fed beat by Nick Timiraos.

Is it true?

Did the Federal Reserve intervene out of fear the locomotive was about to reduce our helpless maiden to her component parts?

We cannot discount the possibility.

Research led by UC Berkeley professor Annette Vissing-Jørgensen reveals the Federal Reserve will leak policy in advance to gauge the reaction.

The media is the preferred route:

The most important and likely channel through which information gets from the Fed to asset markets is informal communication with the media or private financial institutions.

Just so.

But let us put yesterday’s lesson in good, hard English…

Eight years past the financial crisis, the stock market still cannot go on its own.

Monetary crutches must hold it upright yet.

And “normalization” will remain a sad joke until someone kicks the crutches out from underneath.

But who will do it?


Brian Maher
Managing editor, The Daily Reckoning

The Daily Reckoning