Morning Commentary
Last Friday, the market took it on the chin in a manner that was not represented in the close of major indices. Sure, the Dow was down 1.3% and it shed 7% this year already, even the tech-laden NASDAQ, which suffered a 3% drubbing has been slammed almost 13% this year, but it doesn’t accurately reflect the carnage.
Those hot stocks (known as the FANG trade) have been bitten, reminding investors that the momentum pendulum swings both ways.
Of course, this all got started with the jobs report, which I thought was the best possible outcome for a nervous market. Overall, we saw a tepid job growth that will be revised lower, along with stronger wages to mitigate recession arguments. However, the twelve-cent increase in wages has many economists saying that the Fed will hike rates in March.
I say that it’s nuts. Sure, inflation 101 says inflation happens from too much money chasing too few goods- is there anyone out there with too much money.
Still, there are new voting members on the Fed; two have spoken out this week, burnishing their reputations as hawks and straight shooters. First, Esther George says Wall Street needs to “man-up” and to take these rate hikes, followed by Loretta Mester, who says that Fed policy doesn’t mirror the market and essentially says that the tail will not wag the dog.
We are still off the double bottom formation and can still rally. Your key numbers next week are 16,500 on the upside and 15,750 on the downside. Look for more gyrations, but stick with the weak dollar investment strategy.
There are more earnings reports and economic data releases scheduled for the week, but it’s anti-climactic. From here on out; each time a Federal Open Market Committee (FOMC) voting member opens their mouth, it will dictate the direction of the stock market. While those academics try to sell the idea that this is an economy so hot that it needs cooling off, the rest of us will be looking for signs of economic life.
Today’s Session
European weakness is slamming our market this morning. Germany is taking it on the chin as the DAX is now off more than 27% from its all-time high reached last April. The long term trend line has been breached, so look for next support perhaps around 8,500. The Euro is at three-month high versus dollar, and there is increased concern the ECB is impotent in a world excessive central bank manipulation.
And don’t look now but Greece is grabbing headlines as their ten year is above 10% and 2-year above 13%.
The global washout continues as investors grapple for a port in the storm as they seek leadership and clarity.
Stocks are oversold, but that doesn’t mean they can’t get cheaper. However, it does mean missed selling opportunities are now more likely in the category of panic.
Rotation continues into US bonds and picking up with gold.
Comments |
Fed rate hike in this scenario might indicate fellow America hating fed appointees continuing the administration's theme of transforming America by punishing the country for its excesses. Al on 2/8/2016 12:08:48 PM |
I do not understand why when we all were screaming for the FED to stop interfering with the price of money. Then they finally START to unwind that interference that drove everyone to the equity market by raising the price (interest rate) of fixed income, now people are complaining that it is painful and the inflated equities are coming back to where they should have been in the first place. Wake up. They inflated the equity market and now it is deflating. Frank on 2/8/2016 4:16:05 PM |
Chas; perhaps you should remind everybody what the Fed is and who it works for. It is not a bunch of swells looking out for you and me. Z on 2/8/2016 6:51:56 PM |
C'mon Charles. Your words: "Of course, this all got started with the jobs report, which I thought was the best possible outcome for a nervous market. Overall, we saw a tepid job growth that will be revised lower, along with stronger wages to mitigate recession arguments. However, the twelve-cent increase in wages has many economists saying that the Fed will hike rates in March." Tell me how much more twelve cents per hour, day, or week, is going to make a difference to folks here in the USA? When so many are under and unemployed, and hundreds of thousands of others are working as many part time jobs as they can; it tells me the rosy outlook the media, government, and the Federal Reserve paint job is marketing for a lovely shade of lipstick. Paula Rose on 2/8/2016 9:48:56 PM |
If zero interest rates are good for a poor economy, then it should be even better for a good economy. The Fed wants to raise interest rates because they are bankers, i.e., that is how banks make money – it used to be called usury. The rates should stay at zero and be left alone, why should the Fed charge for over-night loans anyway? One economist on Varney and Co. (that is where I “met” Charles) last week said that the Fed needs to raise the interest rate so that they can lower it later – does that appear to be sound fiscal logic? I think that history (see the Carter Administration – not really Jimmy’s fault) tells us that raising interest rates increases inflation – I know, I paid 15.9 % on a home loan in 1979. El Zorro Oro on 2/9/2016 9:57:32 AM |
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