Is It A Looming Rate Hike, Or Something Else?

After posting blistering gains in the month of October, stocks took it on the chin last week and it’s technically looking like more short-term downside could be in the cards. For the week, the Dow Jones Industrial Average (chart) lost 665 points, the Nasdaq (chart) retraced 219 points or 4.3%, the S&P 500 (chart) -76 points and the small-cap Russell 2000 (chart) closed lower on the week by 53 points or 4.4%.

Seemingly, the start of the selling pressure accelerated when the October labor report came out surprisingly strong. This report was released on November 6th. One could say that this is the main reason stocks have been under pressure. Pundits are now calling with almost certainty that the Federal Reserve has the green light to raise interest rates at their next meeting in December. Couple this will commodity prices continuing to fall, in particular oil, which is down recently almost 10% and you can understand why the markets would be under pressure. Or could it be the simple fact that October saw almost 10% gains across the board and the key indices were overdue for a pullback. I’d like to add to the mix that the latest round of economic numbers could also be weighing in on investor sentiment. This is evidenced by a weaker than expected retail sales number and weak retail earnings reports issued last week along with a very weak Producer Price Index. Sum all of this up and it’s no wonder the aforementioned indexes closed lower by almost five percent last week. From a technical perspective the key indexes have now breached their respective 200-day moving averages and if you are bullish, you would want to see the markets recapture this key technical support line and return to the uptrend that was intact throughout the month of October.

As the Thanksgiving Day holiday fast approaches, both Paula and I wish everyone a very safe, healthy and Happy Thanksgiving 🙂


What a day for the bulls!

Stocks took off right out of the gate this morning thanks in part to a better than expected payroll number. Private sector hiring had its best showing in five months creating 163,000 new jobs compared to the 100,000 number most economists anticipated. This was enough to send the Dow Jones Industrial Average (chart) up 217.29 points, the Nasdaq (chart) +58.13, the S&P 500 (chart) +25.99 and the Russell 2000 (chart) +19.88. After trading the majority of the week in the red, three of these four key indices closed slightly up on the week, with the sole exception being the Russell 2000 (chart).

One of the concerns I have about the July labor report is that even though the private sector hired more workers than anticipated, this number is still way below the 250,000 monthly jobs necessary to have a meaningful impact on the unemployment picture. I have also watched a deterioration of consumer confidence as of late along with sluggish retail sales numbers. This does not bode well for the overall economy because the consumer plays a significant role in how our economy performs.

Now to the markets. If you are an investor, or a trader for that matter, you might be scratching your head and asking, “how could equities be at multi-month highs when we have anemic job growth and weakening consumer confidence?” The answer is very simple and that is – the Fed. Policymakers here and abroad have made it abundantly clear, if the markets and/or the economy needs us, we will accommodate! This mantra and position has helped fuel stocks all year long. Unless the central banks change their tune, a floor will continue to be placed underneath this marketplace.

Personally, it is difficult for me to have the confidence in going long or short equities in this environment. On one hand, you have a struggling economy and lagging corporate earnings. On the other hand, you have central banks from around the globe having a “whatever it takes” attitude while injecting a steady flow of cheap money into the system. That said, there are trading opportunities on both sides of the fence and seemingly technical analysis may become more influential on stocks or indexes then anything else right now. Good luck to all.

Have a great weekend 🙂