interest rate

Where Is The Vol?

Posted on by George Mahfouz

As the second quarter came to a close yesterday volatility is no where to be found. The CBOE Market Volatility Index also referred to as the VIX has been pretty much dormant this entire year (chart). Typically vol ticks up as we approach summer for a variety of reasons such as earnings reporting season, seasonality and of course the Federal Reserve policy actions. As expected the Fed did raise rates in June but the markets appear to be pricing in a higher interest rate environment. So far this year the Dow Jones Industrial Average (chart) is up 8.03%, the S&P 500 (chart) is up 8.24%, the Nasdaq Composite (chart) is up a whopping 14% and the small-cap Russell 2000 (chart) is up a modest 4.29%.

Seemingly everyday stocks are in melt-up mode. There are days where volatility tries to rear its head up, but that does not last very long. (See chart below). Even when Goldman Sachs came out with a bearish report on June 9th comparing the red-hot tech sector to the internet bubble era, the negative effect of that report lasted only a couple of days before tech found support and then proceeded to make new highs. The traders and investors that are waiting for the proverbial 10% or more correction are just not getting it. Buying the pullbacks is what has been working ever since the election but the problem is that if you are not stepping in on the 1-3% percent retracements, you are missing the next leg up. How much longer can this type of market environment last? Now that Q2 is in the books, earnings reporting season will soon begin. Let’s see if corporate earnings continue to come in stronger than analyst expectations and if so, stocks may just continue to remain bulletproof.

A quick gander at the technical shape of the aforementioned indexes and there are no signs of overbought or oversold conditions according the relative strength index. Therefore I am expecting vol to remain relatively low until at least second quarter earnings season begins. Good luck to all!

Both Paula and I wish everyone a very safe and happy Fourth of July holiday weekend 🙂

~George

VIX Chart - Paula Mahfouz

Finally The Fed Raises Rates!

Posted on by George Mahfouz

After 9 years of essentiality zero percent interest rates, the Federal Reserve today raised its benchmark interest rate one quarter of one point. Investor’s embraced the Fed’s action lifting all of the key major averages. The Dow Jones Industrial Average (chart) closed up 224 points, the Nasdaq (chart) up 76 points, the S&P 500 (chart) up 29 points and the small-cap Russell 2000 (chart) closed out the session up 17 points. The street gained confidence when Fed officials also provided clarity as to their upcoming intentions regarding further rate hikes. Such hikes would only move up between 0.25% and 0.5% and would be subject to future economic activity and data. Another takeaway today is that the Federal Reserve has enough confidence in the current economy to raise rates and confidence in future growth in the foreseeable future. If you are bullish on the markets it doesn’t get better than this. Which is a tepid Federal Reserve while considering raising rates and an economic backdrop that seemingly is demonstrating growth albeit in a moderate manner.

So which sectors could benefit the most from a rising interest rate environment? One sector I will turn my attention to is the banking sector. Banks tend to earn more when rates move up simply because they can charge more interest on the loans they make. There are individual bank names that one can consider but for me personally I would rather position myself in the largest banking exchange traded fund (ETF) Symbol: XLF. The XLF’s top holdings include the likes of Wells Fargo & Company (NYSE: WFC), JP Morgan Chase (NYSE: JPM), Bank of America (NYSE: BAC) Citigroup (NYSE: C) and Goldman Sachs (NYSE: GS) just to name a few. So you get the diversity of multiple money center banks and other banking related institutions which spreads out some risk. That said, it is best practice to consult with your financial advisor(s) before making any investment decisions.

I do think that investors and traders alike can now breathe a sigh of relief now that the Fed has made its first move and the markets cheered that with enthusiasm. Good luck to all!

Both Paula and I wish everyone a very safe and happy holiday season 🙂

~George