The news is still not great, but that is nothing new for the market. Considering the possibility of thermonuclear war just last week, this week's problems are a walk in the park. Retail Sales beat expectations Tuesday -- ostensibly a good thing, but in this 'perhaps good is not good' market, the news didn't really help stocks. The President continues to shotgun tweets about everything, the country is as divided as ever, Housing Starts and permits tumble, and the FOMC didn't appear quite so ambivalent to the market's rise according to the minutes of its last meeting. A mix of good and bad, nothing too good, nothing too bad. Perfect for the market, right?
Not quite perfect. The stock indices rose Wednesday, adding to the rebound from last week's selling. The gains were not much, however, as early upside was punted. The result were unsatisfying gains that did not change the market's condition.
That condition? DJ30 holding the 10 day EMA just below the prior high. NASDAQ, SP500, SOX holding over the 20 day EMA with the bounce off support. SP400 and RUTX holding a bounce off the 200 day SMA, still working to get through the 10 day EMA, the most meager of resistance.
SP500 3.50, 0.14%
NASDAQ 12.10, 0.19%
DJ30 25.88, 0.12%
SP400 0.23%
RUTX 0.02%
SOX 0.15%
VOLUME: NYSE +4%, NASDAQ +14%. Neither exchange made it to average, just some higher trade on a move higher that was pushed back. Perhaps a slight negative bias to the price/volume action, but it was no reversal.
A/D: NYSE 1.5:1, NASDAQ 1.3:1. Blah breadth, matching the market action.
FOMC Minutes: more hawkish than expected. Contrary to Mr. Dudley's comments this week, the FOMC confirmed it would pare the balance sheet in September: 'most Fed officials backed B/sheet move at "an up coming meeting."'
At the same time, however, the usual core worried about the lack of inflation and argued for 'patience.' Of course the Fed's official position is still that inflation will pick up over "the next couple of years from its current low level," something the Fed has droned in each of its last 20 or so meetings.
The big issue: asset valuations. At least one member stated 'a tighter monetary policy than otherwise was warranted' due to other factors influence the financial markets besides the Fed's gradual removal of accommodation. In other words, the Fed believes asset price gains thanks to the Fed policies may not provide much more in terms of economic stimulus, and thus the Fed is entertaining that the markets could move lower without a deleterious impact on the economy. Wow, pretty loose talk for a Fed that owes all of the economic and market gains (mostly market gains) to financial asset inflation making finite parts of the populace very wealthy. Surely it has to keep that going to keep the house of cards intact.
Ah, but the Fed always suffers from the same malady: in the end it actually believes IT was the reason for any prosperity that occurred.
But, the market still holds its trends.
In any event, at some point you would think the alienation of the President and Congress would impact the stock market. You would think that the back and forth of the FOMC would impact the market. Maybe it is trying as shown in the various sharp breaks lower time and again. If so, it is not strong enough to overcome those working to keep the uptrend going, whether your day to day market participants or some other actors with very specific reasons that the market rally continue on and on.
Thus while the Wednesday action was unsatisfying for the upside, it weathered the disbanding of the truly worthless business councils and the FOMC turning more hawkish. Yes, the councils were a joke: the same companies that benefitted from the Obama stimulus, the ACA (remember those waivers THEY got), the hundreds of thousands of regulations are the same ones advising the President. On what? How to keep the same policies in place that give them the competitive advantage and block access to companies with good ideas to challenge them? Good riddance!
Instead, the President, as his predecessor, has a phone and a pen. Or was it a pen and a phone? If the cronies in Congress won't help the average US citizen that received NOTHING from the stimulus, the ACA, the tax increases, the hundreds of thousands of regulations -- start to work on what WILL work.
1) Instead of going to Congress with a 15% corporate tax rate for the HUGE corporations that already received all the benefits the past 10 years and more, move that rate to 15% for TRUE small businesses, the ones with 1, 2, 3, 5, 10, 20, 50, 100, 200 employees. Leave it as it is for the others. THAT would pass.
2) Grant ACA waivers to those small businesses. Heck, the huge companies all got a pass on the ACA; give it to the small guys.
3) At the same time, write and EO that allows insurance companies to sell across state lines.
4) Write an EO that grants waivers and credits and block grants to doctors who form direct medical associations. Those are the groups where you pay $50/month and get all of your healthcare for that $50 except for tests such as MRI's, but those are provided at DRAMATICALLY reduced prices.
5) Divert the hundreds of billions used to subsidize insurance companies to offer insurance under the ACA to the small business people to set up health savings accounts for their businesses and employees to pay for those medical expenses and premiums.
6) Grant tax credits to insurers that write low premium, high deductible catastrophic policies that provide the backstop protection for the big events the direct medical associations cannot handle. Of course, high deductible is relative; back in 2000, $5K was considered very high. Now $10K is quite normal. The point: you used to buy a very good catastrophic plan for $300/month for a family with a $5K deductible and 100% coverage once the deductible was met. That plan today costs $1500/month with a minimum $10K deductible and only covers 80% post-deductible. We need to provide incentives to get the insurance companies to again write those policies.
That is a start. A good start. Go for it.
But I digress. The action was lackluster, but the trends remain in place. I remain skeptical of the move, but that has proved to be poor judgment in the history of this market. Thus, if the moves are there, we move in. Thing is, not to many great moves today. FCX was solid along with a few moves here and there, but nothing we got that excited about. Several low volume melts higher that we are avoiding, but also letting other good moves continue their upside. For now, that pretty much has to be the game plan.
Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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