So why the “I’ve got a secret ? Why the coddling of the stock and bond markets ?
The plunge in stock and bond markets in June after Fed chief Bernanke indicated the Fed may begin to taper in the fall and wrap it up by mid-2014, was a wake up call that there WILL BE a change in Fed policy and it could jolt the markets.
There is nothing wrong with what he said.
What was alarming was the Fed’s action thereafter to prop bond and stock markets with assurances that Fed taper and tightening is not the same thing, and not to worry the Fed would be there to accommodate just about anything.
Why the back peddle ?
Does the Fed think the Street can’t handle reality with what it has been through over the last five years here and abroad ?
Lay it out there and let the market decide, because the more the Street relies on the Fed to prop the markets, the greater the risk of a sharp crack in stock prices if the market gets an ugly wake up call.
Can’t happen ? Bullshit.
I am a Bernanke supporter, and think he and the Fed have done a great job avoiding a devastating global meltdown. But, with the stock market at all-time highs and bond market close to all-time highs, risks of a reversal are great if this aura of invincibility is shattered.
I’m really a bull and think this market has further to run, that it will ultimately run through the classic cycle, ending in a speculative blow-off.
But, that won’t be achieved in a straight line.
A severe reality jolt could crack the DJIA 3,000 points to the 12,500 area. While that would probably have to come from a higher level, we would only be retracing back to levels seen a little over a year ago.
I am fine with the Fed policy of flexibility, accommodating the demands of a slow-growth economic recovery, but why be so vague about its Plan A and Plan B ?
Yes, taper will begin based on economic progress. What about interest rates ? What will dislodge the Fed from its zero policy – then what ?
It seems like they are afraid to talk about a no-hitter in the 8th inning.
The Fed needs to bring the Street into the loop on interest rates post QE, the best and worst case possibilities as the Fed sees it.
The stock market is gaining its momentum primarily from Fed commentary that it will begin to taper sometime in the future, but don’t sweat it.
What happens when reality sets in that stimulus will soon end and interest rates rise further ?
If the market has not adjusted for that, it is vulnerable.
After yesterday’s rally failure, we will get a big open, probably challenging yesterday’s all-time intraday high of DJIA 15,634.
This rally cannot fail, if another leg in the bull market is imminent. Tomorrow’s 8:30 a.m., Employment Situation Report will have an impact. A better than expected (187,000 private sector jobs) report will take us closer to the first taper out of QE.
Investor’s first read– an edge before the open
S&P 500: 1,685.73
Nasdaq Comp.: 3,626.37
Russell 2000: 11,045.26
Thursday, August 1, 2013 (9:10 a.m.)
TECHNICAL OBSERVATION – STOCKS:
Alert: I have successively accomplished my goal of helping readers navigate through the plunges in both AAPL and FB and subsequent recoveries. .I may soon drop coverage and either pick up other fallen angels, or begin the technical tracking of stocks on the move.
A little profit taking after a one-month 18% surge is normal. Support is $444.75. There is some resistance at $455.40, more important resistance at $457.
Some saw-toothed, sideways action would be normal as AAPL digests its nice July move.
FACEBOOK (FB - $36.80)
FB couldn’t stay above its IPO price of $38 yesterday, but it is up 39% in five days and some consolidation would be normal. Could slip below $35 in a correction. Profit takers and investors in the IPO who held on as it tumbled to $17.55 may put a lid on it at $38.
I DO NOT OWN, NOR HAVE I EVER OWNED APPLE OR FB.
Huge week for reports on the economy plus more insight on Fed policy coming out of the FOMC meetings Tuesday and Wednesday.
HOME BUYER BUYING PANIC ?
Mortgage rates rising, home prices rising, inventories decreasing !!
For a detailed account of past and current economic reports, including charts go to: mam.econoday.com
Pending Home Sales Ix. (10:00) Declined 0.4% in July to 110.9, but signed contracts are still up 10.9% y/y.
Dallas Fed. Mfg. Svy. (10:30) July’s index dropped to 4.4 from 6.5, but is still generally seen as positive.
FOMC meeting begins
ICSC Goldman Store Sales (7:45) Declined 1.6 pct for the week ended 7/27 with
drop more in discretionary vs. staples
S&P Case-Shiller Home Price Ix. 9:00 – rose 12.17 pct (May) y/y
Consumer Confidence (10:00) Slipped to 80.3 in July from 82.1 in June.
ADP Employment (8:15) 200,000 private sector jobs were created in July
GDP – Q2 (8:30) Under the new revisions, Q2 rose at an annual rate of 1.7 pct. in spite of a drop in federal spending of 1.5 pct. GDP has undergone a major revision going back to 1929 so expect some distortions. The revision will reflect a minor reduction in federal spending and debt as a percent of GDP. Q2 estimates may lack relevence.
Employment Cost Ix.(8:30) Proj.: +0.4 pct Q2
Chicago PMI (9:45) Rose to 52.3 in July from 51.6 in Jne
FOMC meeting announcement (2:00 PM) QE commentary possible
Jobless Claims (8:30) Proj.: 345,000 for 7/27 vs. 343,000 7/20
PMI Mfg. Ix. (8:58) Proj.: 53.1 July
ISM Mfg Ix. (10:00) Proj.: 53.1 July vs. 50.9 in June and 49.0 May
Construction Spending (10:00) Proj.: +0.4 pct June
Employment Situation (8:30) Proj.: 175,000 July (nonfarm), 187,000 (private), Unemployment rate 7.5 pct
Personal Income/Outlays 8:30) Proj,: +0.4 pct June
Factory Orders (10:00) Proj.: +2.3 pct June vs. +2.1 pct May
FOMC: Oversees nation’s open market operations, the buying and selling of U.S. Treasury securities, as well as the primary “decider” in the direction of interest rates and money supply.
“Investor’s first read – an edge before the open”
The writer of Investor’s first read, George Brooks, is not registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.