In grand irony, when all were expecting a perfunctory Dow move to 20K, the FOMC and Janet Yellen in particular decided this Trump market had gone high enough. No, the 25BP rate hike didn't do anything to stocks, but the Fed did up its 2017 projected hikes from 2 to 3. Still no deal killer. Yellen stated she was going to serve out her term. THAT could be a market negative for sure. The Chairman went further, however, going out of her way to touch all points of Trump policy that have moved stocks higher.
Specifically, Yellen said unemployment was just fine and inflation was moving higher (somehow that is supposedly a good thing), and as such the proposed fiscal stimulus, infrastructure spending (and the much better, non-burger flipping jobs they will bring) were "not needed" and indeed "may not improve" the economy. Hell, she even went on record against rolling back regulations. A true establishment stooge in the place best to effectuate establishment policies.
There you have it. Not only are the democrats-in-drag republican 'leaders' in Congress trash talking against Trumps policies, the Fed Chairman is as well. Nothing scares those in power more than change that might loosen their grip on power. Democrat, republican, socialist, Green party -- about the only part that wants to decentralize power are the libertarians. But of course, they have to have power to lose power. Kind of like that M*A*S*H television episode where Colonel Flag said he had permission to die if necessary to carry out his orders. Hawkeye responded 'if we had more men like you we would have less me like you.'
As that pertains to the market, stocks didn't like it. Doesn't take a knowledge of advanced partial differential equations (the mere name makes me want to jab a pencil in my ear) to understand why, after this one-two-three punch that investors said 'forget it' and stocks sold into the close.
SP500 -18.44, -0.81%
NASDAQ -27.16, -0.50%
DJ30 -118.68, -0.60%
SP400 -1.29%
RUTX -1.27%
SOX -0.14%
VOLUME: NYSE +22%, NASDAQ -7%. Some distribution on the NYSE indices as they sold. Looks like a combination of larger caps and smaller caps suffering the distribution. No heavy selling as the techs faded.
A/D: NYSE -4:1 as the small and midcaps led the downside. NASDAQ -2.7:1. Hefty downside breadth, much stronger than any of the upside breadth on the move higher. Another indication the upside is losing momentum as the limited downside, when it finally showed up, showed much more strength than the upside.
Thus ended the Dow's bid for 20K on this rally. But, as has occurred two FOMC meetings back, the reaction on the day after can be a 180 from the day of. The thing investors will wrestle with is whether the Trump reasons to rally remain even after Yellen's comments and answers that are, quite frankly, those of a Keynesian hack who is petrified of action. Consider that she lauded the labor market and 4.7% unemployment, dismissed the need for any stimulus, but then only sees 3 hikes in 2017? From 0.50%?
There were breakdowns in some leaders, at least breaks from their near term trends. Industrial equipment saw some cracks, some metals broke though others held, oil didn't break but some issues sold hard. Financial stocks surged then faded to more or less flat. Chips held up fine as did retail.
A mixed reaction and the market will have to show us its next move. We closed several positions that were struggling in the event investors and traders decide the Fed is against Trump's plans. Combined with the republican leaders who back-slap and promise great things then stonewall and obstruct when it comes time for action, Trump has a huge obstacle. He should have cleaned those guys out when he had the chance . . .
Anyway, we did not buy anything new, pared those struggling, but let our positions that are holding their trends still hold their trends. Yes, while some sectors took some pretty heavy fire, most just tested. Even so, with the moves above the 200 day SMA to this point, the action in the VIX vis- -vis the stock market, and the level of bullish sentiment, even with leaders holding, you have to be a bit more cautious.
We will see what groups hold the line, set up new entries, and move that way, but it may take a session or two for them to figure out what the Fed has done.
Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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