10/5/2016
By Charles Payne, CEO & Principal Analyst

The market stumbled out of the gate and never recovered after Richmond Fed Chairman Jeffrey Lacker’s comments that there is a “strong case” to raise rates to keep inflation under control.  Considering that Lacker will not be a voting member of the Federal Open Market Committee (FOMC) until 2018, the reaction underscores the heightened anxiety over the next move by the Federal Reserve.

Making the session even more compelling (I would use “crazy” and “contradictory,” but those adjectives  are better suited for the current election campaign) is the so-called hedge against inflation, which took it on the chin pretty good.  Gold was slammed after failing to hold at its key psychological support of $1,300.  Technically, it must hold in this area or it could slide all the way down to retest $1,200.  Yes, this could be more of a technical move than a harbinger of the economy or the Fed.

The decline in gold can also be attributed to a reaction to a stronger U.S. dollar.  The dollar could be on the cusp of a monumental move, coming out of a pennant formation after a series of higher lows.

However, it continues to be very interesting that the market is so focused on a 25 basis points (bps) hike with so much central bank money sloshing around and buying assets, including stocks. The European Central Bank (ECB), Bank of Japan (BOJ), and BlackRock Global Opportunities Equity (BOE) will purchase $506 billion in assets in the final quarter of the year.  I am rooting for the Fed to hike rates but only if it’s justified. The economy isn’t soaring, and inflation isn’t an imminent risk.

Considering this is a jobs report week, I expected at least one big down session and a big ‘up’ day before Friday.  If that’s going to happen, it looks like technology will have to provide leadership. On that score, while everything cloud has dominated headlines, semiconductor stocks are up 25% this year.  After the bell yesterday, Micron Technologies (MU) reported results beating earnings consensus by $0.06.

It’s a dicey period but with current stock valuations, I continue to say that we want good news even if it means a knee-jerk hiccup in the broad market.

Charles Payne
Wall Street Strategies

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