Last week began with hope and slight optimism, but it ended with anger and frustration.  Ironically, it was the Fed’s decision to keep the punch bowl in place that crushed Wall Street.

No rate hike!

The inability or unwillingness to move wasn’t seen as a bow to Wall Street and an attempt to prevent yet another hissy fit.

On the contrary, as Yellen threatened to prove her independence with a rate hike, even if conditions weren’t one hundred percent, she blinked the other way.

We learned a dirty little secret-- the punch bowl is empty!

Instead, the Fed is not capable of letting the world know that the U.S. economy is strong enough to move on its own.  It was a devastating acknowledgment of the Fed’s own inability to dictate to the market (particularly with its mechanisms that flood money to banks, not people, or small businesses).  In reality, those seven years of class warfare, higher taxes, and mounds of regulations may win elections, but it moves the actual needle of prosperity in the wrong direction.

The Fed is trying to clean up its actions with hints at a rate hike before the end of the year, and suggested that it almost happened last week.  Despite there being only one dissenting vote, Fed official Williams says the vote was a “close call.”  Fed chair Yellen says the Fed is “monitoring developments aboard,” insinuating that it’s not America’s economy, but our connection to the rest of the world.  It’s sort of like that old break-up line: “It’s not you, it’s me.”

 

 

It’s the Economy, Stupid

It’s the U.S. economy and weak wage appreciation.  The backward prosperity of cheap gas and a strong dollar are not going to spark that virtuous cycle.  I have said this all along, and many thought that it was a call for higher gas prices or higher interest rates.  In fact, if we are looking for real prosperity, it’s not about an economy where people are being laid-off and where major projects are being shelved.  It’s about growth and businesses taking risks and making investments.

The DNA and resolve of the average American who starts and grows small businesses will keep the nation afloat long enough for someone to take office and make America exceptional. Between now and then, I suspect there will be several rate hikes, even with some political trepidation in 2016, which I find  interesting.  In the meantime, the narrative has changed to Wall Street whining and begging for more Fed accommodation; hoping the rates move higher as a sign that our economic health is okay.

Technical View

The market finished the week almost at the exact same point that it began; the trip higher was slow and methodical, while stocks tumbled lower with the typical thump associated with everyone hitting the exits at the same time.  Coming into the week, I felt that it was important for the Dow to close above 16,400; for a while, a close above 17,000 seemed possible.  Now, it’s back to defending the Dow at 16,000, otherwise we could see a re-test of the flash crash bottom of August 24.

Fundamentally, we shouldn’t be talking or bracing for the Dow to dip below 16,000. The overall market valuation isn’t outrageous unless you employ some of these new measures created; I think  people should make or remake a name for themselves.  Nonetheless, this is an antsy period of real frustration,  fear, and a dollop of confusion.  In so many ways, it mirrors our political situation.

This is a brief moment in time, it seems to be forever after the market’s march higher, but even that march was interrupted and challenged from time to time.  The weaker and more frustrated hands were shaken. Next time, the Fed will hike rates; by then, China will have announced a major stimulus package, and we’ll be a few months closer to potential change that will reward and focus on greatness.

Make sure to keep an eye on oil, which now trades hand-in-hand with equities.  Another big drawdown could send the price north of $50, but there are many calls for a 3 or 2 handle, which means trading in the $30s and $20s.

Today’s Session

Obviously, the initial bounce is a good sign for a market that could have picked up on Friday's sell off but we aren't taking the bait, just yet.

I continue to stress stocks are not overvalued in the sense of what's driven recent crashes.  There is historic precedent for stocks to be under pressure from outside factors such as the time a currency nobody ever heard of triggered a global crisis (the baht) or that time those Noble prize winning geniuses tried to put theory to the test.  Turns out they were smart, but no match for real life.

Then there is the time the government shutdown, and stocks panicked.

Currently, there's growing speculation there will be a government shutdown as both parties play brinksmanship ahead of next year's election.  I liked the idea of shutting down the government over excessive debt and reckless spending. But, that is not the debate this time around.

Let’s watch this action, but understand there are dozens of stocks that will be significantly higher a year from now, some even sooner.

Comments

Friday was also quadruple witching day, which typically drives the market lower the second half of the day unless there is really good news around. Since there wasn't, it made lots of sense that the market dropped late Friday as traders got out of positions before expirations, etc. Mike on 9/21/2015 10:22:36 AM

Ever since Bill Clinton, the law has become a rubber band that stretches one way or another depending on who you are. If GM and now Hillary can get away with murder (we still don't know who killed her pal Vince Foster), lying, greed, and whatever, we no longer have the same country the Founding Fathers gave us. It is time for a Jeffersonian-style revolution. Dennis Howard on 9/21/2015 10:22:49 AM

The Government only bailed out GM to save the unions which they accomplished their goal. The real folks who should be held accountable is within our own gov. Please name any program our gov. has been involved with that has been efficient and successful as intended ? Our Country is in very seriously bad condition. bart harrison on 9/21/2015 10:27:55 AM

Two words. No accountability. rusty on 9/21/2015 10:41:25 AM

So the Federal Government got paid...What about the families of those people that lost their lives? What did GM do for them? Companies and their Boards need to be held accountable when products they sell fail and consumers are hurt or killed. Ray on 9/21/2015 11:19:15 AM

Reminds me of our congress. Propose a balanced budget. In 10 years. Absurd Jon Lewis on 9/21/2015 11:30:02 AM

Barts answer on 9/21 is right. No Accountability. Allow me to amplify. No one lost their job, no one was jailed, and the company was bailed out. Again, no one was held accountable. RB R.Briggs on 9/21/2015 12:33:36 PM

They will never prosecute GOVERNMENT MOTORS' EMPLOYEES!!! Don Olsen on 9/21/2015 12:55:13 PM

I'm just wondering about all the millions of dollars of fines and penalties paid to the federal government? Where do they go and what are the used for? Think about the suits on the banking industry and now GM, where does the money go? There are never any damages paid to those who suffered, i.e. rigging LIBOR, lending practices and now the GM settlement for real deaths? It's like the mafia, the federal government extracts payments with the power of punishment or curtailing of their operations and allows them to continue to operate after payments are made. Andy Stephens on 9/21/2015 1:21:51 PM

What did the GM board of directors know and when? F Sopron on 9/21/2015 1:55:33 PM

No wonder people have lost faith in government. When you consider that the London Whale was fired along with other higher ranking executives (and that was just for losing billions of dollars), in the GM case lives were lost and no one was fired or even prosecuted. What does this say about our financial system? It pays to murder people??? Michelle Johnson on 9/21/2015 1:56:53 PM

Given the anti-congress/anti-Washington mood of the electorate,politicians should not fear any repercussions of a government shutdown.Leadership should do the right thing and not fund Planned Parenthood. Let Obama defend his veto and the Dems defend their vote if they fail to over-ride. Al on 9/21/2015 2:49:33 PM

The federal government should keep its nose and our money out of private business. The president and congress should be as culpable as the business heads. doug armstrong on 9/21/2015 3:51:53 PM

I won't buy a GM vehicle...too many recalls and better products available. e shouldn't have bailed them out...they shouldn't be in business! SUZI on 9/21/2015 5:50:05 PM

Only if your'e a Libreal . And if you are , what a load of Idiots among the fold. Yes it is a Quote . My Quote. Keith Lawrie on 9/24/2015 9:32:01 PM

In response to your question on tv this a.m. Friday, (on Varney's show)... I consider myself a typical member of the silent majority (conservative, usually vote republican), but I identify totally w/tea party & am sick of politics, as usual). I believe that I am only one of many who feel this way. We want a radically different change in our gov't - nothing short of civilized revolution, according to our law & constitution, at this point. Feeling over-run... Carol Spink on 9/25/2015 12:18:14 PM

Compare that with the possible 18 billion fine for polluting by VW... seems somewhat unequal, eh? Jimma on 9/27/2015 1:42:37 PM

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