Another Dot Day
Equities start the day higher on another Dot Day! Yep, that’s right my friends, only in finance could we make a dot chart seem like the most important thing in the world! To be fair, the path of future interest rates is critically important to what we do, I just love how something as simple as a few dots has taken on a life of its own. Fed Day! Who doesn’t love hearing from our friends in Washington about liftoff and inflation expectations and wage pressures, I mean if you don’t live for this stuff than I’m not sure we can be friends. It’s hard to imagine that the Fed could be more important than it is right now. Every word, every motion, every eyebrow raise is watched like a hawk by the entire investing world. Will they hike? Won’t they? Has it always been such? Frankly I’m not sure, I started in the equity trading world in the year of our Lord 2007 and the only thing I’ve ever known about the Fed is that they cut rates. Cut, Cut, Cut, never hike. I’m curious to see what the market does when we finally light this candle because we need a bit of uncertainty. Uncertainty creates opportunity for you and me. It allows people to shake off the cobwebs, to overcome their own inertia. So did they hike today? Did they hint at a hike? Did someone protest Janet at the Press Conference? Read on to find out.
After the open it was nothing but lower. Lower on Monday. Higher on Tuesday. Lower on Wednesday. Hey this market thing might be in some kind of pattern here, trading it might be easier than we all thought! Actually I’m guessing it was lower due to Transports. Honestly look at this chart, talk about rolling over right? Transports aren’t in some kind of vicious correction like last October, they are in a multi month sustained downtrend making lower highs each time. It is extremely difficult to remain constructive when there are so many different things breaking down (breadth is another one to worry on). Remember sentiment? How I keep pointing out that there are very few bulls? The I.I. survey was out this morning (newsletter writers) and it showed only 45.5% bulls (down from 47.4 last week). If sentiment is ugly, and bulls are scarce, why is this market struggling so mightily? I mean what’s a contrarian to do here, just sit around suffering the slings and arrows of outrageous fortune? By lunch we sat on unchanged waiting for the big show to begin.
At 2pm we got the Fed announcement along with a new dot chart! Marvel at its beauty my friends because it looks like the Fed wants two hikes this year (is it me or does that chart look like a game of Galaga?). Essentially the Fed told us that the economy is growing moderately and looks strong enough to support an interest rate increase so buckle up. The interesting thing is that stocks rallied instead of sold off. Wouldn’t two rate hikes be disastrous for stocks? You could argue yes (in the very short term), but maybe the market is waking up to the fact that what’s really important is the PACE. Yellen said “the spirit of Fed guidance is consistent with gradual” so I assume people are factoring that more and more into their thinking. We closed at 2,100 on the nose, which was slightly higher on the day. So here’s the big question: did anything meaningful change today? Do we need to reassess our views of the market? I would say no, most of what we got out the Fed was what we expected going in. Will they hike this year? I’m starting to move into the “yes” camp even though there are a lot of smart people who still say “no”. I think they want to do it to prove they can, pause, and then see what happens. Frankly I’m concerned about price action in Transports more than I am about Fed Funds being 0.50 instead of 0.25. I think you should be too.
Final Score: Dow +17bps, S&P500 +20bps, Nasdaq +18bps, Rus2k -9bps
- Succinct Summation of the Day’s Events: It’s sinking in that a rate hike is coming but the pace of them will be gradual. A longer pause after the first hike viewed as dovish, stocks liked that.
- One of my favorite bloggers weighed in on the Fed: “People should conclude that the FOMC has no idea of when the FOMC will tighten policy, if ever. This is the sort of statement they issue when things are “steady as you go.” There is no hint of imminent policy change.”
- Here’s what some really smart people think about this whole Greece mess. I will say that the tone in the market nowadays is “I’m tired of it, just let them exit please”. That’s a stark change from 2011 when everyone thought the world might end.
- Should we obsess over peak profit margins? This article from Bloomberg doesn’t seem to think so: “It can take a long time before contracting margins begin to hurt stock prices,” Lapointe and colleagues Alex Bellefleur and Francois Boutin-Dufresne wrote in a report yesterday. They cited the 1982-1987 bull market, which took place even though earnings as a percentage of GDP were among the lowest since World War II
- Cullen always has great advice: “Yes, markets can get fidgety around rate hike time because they try to be forward looking and assume that this means that growth might be a bit lower going forward, but that’s just typical late cycle action. Fed rate hikes aren’t intended to crush economic growth, corporate profits or bull markets and they usually don’t. The bottom line is, the past won’t tell us much about this rate hike cycle, but a little common sense and forward thinking tells us that it’s unlikely to be a good reason to go jump in your bomb bunker or make life altering portfolio shifts.”
- As you know I’m a huge history nut. This link showing famous events from different angles is RIGHT up my alley
- So is this one of the failed Russian Shuttle program (they stole the plans from us and tried to build a few!)
- Depositing a check in 2015 sure is fun!
- This is a great link comparing today to 2011 (when we got an out of the blue plunge). The author wonders if there are any warning signs we should be heeding. Check it out.
- I might start a new series “world’s most uncomfortable bathrooms”. What’s with people and minimalism?
- This is absolutely the most disappointing gif ive ever seen
We’ll end tonight with what must be the two dumbest beach goers on the planet. Seriously guys…what the ….
Have a good night.