Why Does the Market Fear the Fed So Much?
Equities start the day higher as Fed day is upon us! Like 48 people outside Finance care about Fed day so while we think it’s this big exciting event the reality is much different. You know what the last 3 closes of the S&P were? 2,139/2,139/and 2,139. That’s right, if decimals don’t matter to you (and really who cares about decimals other than 3rd graders) then the S&P has effectively gone nowhere waiting for Janet. So I thought of a great way to talk about the market’s relationship with the Fed and all it took was a lightning storm to inspire me to write. I woke up this morning at the stupid hour of 5:30 am and walked into my Home Depot inspired bathroom to start a new day. Outside my window raged a massive thunder storm and I thought to myself “self…am you supposed to take a shower when lightning is arcing thru the sky like a fireworks display?” With much trepidation I stepped into my $3 per square foot tile shower hoping to survive so I could beat a random MSFT VWAP for my best customer (who also happens to love the right movies). Here’s the thing: my fear, while it felt real and made me stand to the side the whole time, was probably unfounded. What are the odds Zeus would choose today to strike me down while covered in Nivea body wash and singing “Everything’s Gonna Be Alright” by Bob Marley? Zero, or close to zero. Why does the market fear the Fed so much? What are the odds that a 25bps hike will cause the death of our bull market? Isn’t it close to zero? Ok maybe its slightly above zero but whatever, you get my point. Markets have been overreacting to the FOMC for far too long and its driving me crazy. Whatever they say today, or November or even in December let’s not lose our minds over it. Market storms come and go but our default setting should be one of optimism not worry. Anyway, hopefully that made sense so let’s move on.
After the open….wait…what’s that say….there’s no words there. To play us out? What does that mean play us out? No..screw it…WE’LL DO IT LIVE. ILL WRITE IT AND WE’LL DO IT LIVE. THIS PARAGRAPH SUCKS. The Fed decided to NOT RAISE RATES. Harambe may have hiked but the Fed did not. Here is the statement if you want to read all their fancy language but it boils down to this: they have reason to hike but a delay makes sense because I don’t know…elections and sluggishness abroad and EM countries and all the things they must worry about. The market proceeded to rip because certainty is what it likes and a December rate hike is the current certainty. I mean there is a meeting on Nov 2 but hahahah can you imagine them hiking 6 days before an election? The interesting part is 3 members dissented on “no hike” which, if I’m not mistaken, is the most dissenters in forever. Here was the cross asset reaction: Bonds rallied, Utilities rallied, Banks slightly higher, Gold rallied, and the Dollar fell. All very simple and tidy, all make sense too. Now…the BIG question…the million dollar question….what will we worry about going forward because December is a long way away. I guess the election? A Trump Presidency? Earnings? Starbucks running out of Pumpkin Spice? Candy Corn becoming popular? I guess a bit of everything but earnings seems like the most reasonable one.
We closed near the highs of the session and the Nasdaq composite actually did hit a new all-time high! Booyah! Who loves Fed days? This guy. Now we have to ask ourselves “why”…why did the market soar after the Fed held pat, wasn’t that what we expected? Sure, I guess. But they did bring their dot plot down slightly and you know what else, I think too many people panicked last week and sold the market. Guess what they will be forced to do now, that’s right, chase to get back in. 2,200 by the end of Sep? It’s a real possibility.
Final Score: Dow +90bps, S&P500 +109bps, Nasdaq +103bps, Rus2k +136bps.
- Succinct Summation of the Day’s events: no Fed rate hike, status quo of “grinding higher market” to resume in earnest.
- 8 Brutal Truths to Retirement. It’s not all bad though! “investors who maintain an adequate savings rate, reasonable spending habits and the introspection to learn about their own biases and then overcome those biases have a very good chance of having enough when they need it”
- 8 Price action secrets! This one is my favorite: “The analysis of highs and lows offers so much information about trend strength, market direction and can even foreshadow the end of trends and trade reversals in advance.
- I’d like to walk this trail before I die
- I mean it seemed like a good idea?
- Ever seen someone light a cactus on fire and then eat it? You haven’t? come on.
- Winners: NEM, ADBE, FDX, FCX, and APA
- Losers: NAVI, NFLX, FTR, KMX, and WFC
We’ll end tonight with the most Russian video I’ve seen since Drago said “if he dies, he dies”. I mean who makes music by shooting a gun at a target?
Have a good night.