Wednesday, August 20 , 2014 9:16 a.m. BEFORE the OPEN
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I doubt the minutes of the July 29-30 FOMC meeting released today at 2:00 will have much impact on stock prices, but Fed Chief Janet Yellen’s comments at 10:00 a.m. Friday from the Fed’s annual economic symposium in Jackson Hole, Wyoming may if she suggests interest rates will rise as soon as Q1 of 2015.
Additionally, ECB President Mario Draghi will comment on the stalled economies in Europe, a potential negative. Columbia University professor and Nobel Laureate Joseph Stiglitz was quoted today as saying the austerity policies in Europe to address its debt crisis have been a “dismal failure.
We must assume we are still in a news sensitive market, though a rising market suggests otherwise.
This is where it gets tough. The market has rebounded sharply after news turned positive a week ago putting new buying at risk “if” news in Ukraine or out of Jackson Hole is seen as bearish. Risk of not buying is obvious – investors miss opportunities to make money. It is a decision that must be based on one’s tolerance for risk, just another negative of a news whipsaw market.
TODAY:
Support today is DJIA: 16,856; S&P 500: 1,974; Nasdaq Comp.: 4,519
Resistance today is DJIA: 16,978; S&P 500: 1,988; Nasdaq Comp.: 4,543.
Risk of the news whipsaw still exists.
Investor’s first read– Daily edge before the open
DJIA: 16,919
S&P 500: 1,981
Nasdaq Comp.4,527
Russell 2000: 1,162
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JACKSON HOLE:
Fed Chief Janet Yellen will address the annual Kansas City Fed’s economic symposium at Jackson Hole, Wyoming, at 10:00 a.m., Friday. There is no reason to expect any unpleasant surprises.
European economies are currently sluggish, especially Germany’s, and that is partly due to sanctions on Russia for its incursion of Crimea. Expect ECB President Mario Draghi to shed light on conditions abroad.
INTEREST RATES: On numerous occasions, I have reminded readers that stock prices can rise along with interest rates, but to a point where higher rates draw money away from stocks to bonds and where higher rates adversely impact the economy. Realistically, that point must be a lot higher than the zero-based interest rates existing today. I conceded that the stock market would take a brief hit when a move to higher rates was perceived by the Street, but stabilize before moving higher.
A recent study by Andrew Garthwaite, chief equity strategist for Credit Suisse concludes just that. Since 1977, he found the S&P 500 peaked no earlier than four months prior to the Fed’s first rate increase, but gained as much as 4 percent in the six months after the first increase. He notes, that while rate rises have increased volatility in the stock market, they did not mark the end of the bull market.
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HOW DO WE MEASURE THIS BULL MARKET’S ADVANCE ?
The DJIA has advanced 160% (the S&P 500: 194%) through August 14.
But the base point for calculating that advance was March 2009 from DJIA 14,279 (S&P 500: 666) and came after an unprecedented bombardment of unthinkable events, including failures and bailouts of the Street’s most prestigious names: AIG, Lehman Bros., Merrill, Wachovia, Washington Mutual, F.Mae and F. Mac, etc. and a global scramble for survival. A total meltdown appeared imminent between September 2008 and March 2009, panicking investors and crushing stock prices beyond reason.
The final bear market plunge from DJIA 9,000 (S&P 500: 970) to DJIA 6,440 (S&P 500: 666), a drop of 28.4% and 31.3% respectively, was driven by pure hysteria.
While I am stretching the rules of technical analysis a bit here, there is merit in the concept that the final plunge was so emotionally charged, a more reasonable base for the bear market bottom would be DJIA 9,000 (S&P 500: 970) where the market began to fall apart in October 2008.
Based on that assumption, the DJIA would have advanced 85% (S&P 500: 101%) through August 14, 2014, not 160% and 194% respectively. Put another way, that whole panic zone serves as the base for a bear market bottom, not the actual lows, owing to the extreme nature of events that produced the crunch.
Conclusion: While not cheap, stocks are not as over priced as the doomsters think.
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IS the ECONOMIC RECOVERY FAILING TO GAIN TRACTION ?
Depends on who you ask. A.Gary Shilling, publisher of “INSIGHT” * challenged government press releases in an August 4, Special Report, “After the Government Report Releases.”
Among the first to warn readers in advance of the Great Recession, Shilling was quick to point out that the July 30, Q2 GDP report of an annualized gain of 4.0% was misleading with 1.66 percentage points attributed to a change in inventories, bringing the growth number down to 2.3%, a rate he feels is not great enough to “spawn meaningful growth in wages and labor income.” Excess inventories that are not worked off by sales penalize future production.
He attributes last week’s plunge in the stock market to the Street’s concern that the economy is not rebounding.
If he is right, the question arises, Will the Fed have to revise its taper schedule ?
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THIS WEEK’s ECONOMIC REPORTS:
Big week for reports on housing. FOMC meets, no press conference planned.
For detailed analysis of both the U.S. and Foreign economies along with charts, go towww.mam.econoday.com. Also included is an explanation of each indicator. If you want to know when the next Employment report or any other key report will be released that info is also there under “event release date.”
MONDAY:
Housing Market Ix. (10:00): Index jumped to 55 in Aug. from 53 inJuly
TUESDAY:
ICSC Goldman Store Sales (7:45): Down 1.3 pct. in Aug. 16 week vs. drop of 1.3 pct prior week
Consumer Price Ix. (8:30): Up 0.1 pct in July vs. gain of 0.3 in June
Housing Starts (8:30): CORRECTION: Starts rose in 15.7 pct. July to 1.093 million units from 0.945 million in June.
WEDNESDAY:
MBA Mtge Purchase Apps/Refi’s (7:00)): Down 0.4 pct. in Aug. 15 week; Year/year down 11.0 pct. Refi’s (55 pct. of apps were up 3.0 pct. in same week
FOMC Minutes from July 29-30 FOMC meeting (2:00):
(No FOMC meeting scheduled for August, but Yellen speaks Friday 10:00 a.m.)
THURSDAY:
Jobless Claims (8:30):
PMI Mfg Ix. Flash rpt (9:45):
Philly Fed Svy (10:00):
Existing Home Sales (10:00):
Leading Indicators (10:00):
FRIDAY:
No reports
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RECENT POSTS:
July 30 DJIA 16,912 Market on the Verge of Big Move ?
July 31 DJIA 16,880 Huge Test for Bulls
Aug. 1 DJIA 16,563 False Alarm, or ………
Aug. 4 DJIA 16,493 Trader’s Buy, but Risks are High.
Aug. 5 DJIA 16,569 Bulls “Must” Step In Now, or…….
Aug. 6 DJIA 16,429 Is The Economy Really Rebounding ?
Aug. 7 DJIA 16,443 Rally to Give Investors a Good Read on Near-Term
Aug. 8 DJIA 16, 368 News Whipsaw = Increased Volatility
Aug. 11 DJIA 16, 553 Rebound to Good News – How Far ?
Aug. 12 DJIA 16,569 News Whipsaw – Watch Your Back !
Aug. 13 DJIA 16,560 Rally ? Be Very Careful !
Aug. 14 DJIA 16,651 Better Off Now than in October 2007 ?
Aug. 18 DJIA 16,662 All Eyes on Fed at Jackson Hole Thursday
Aug. 19 DJIA 16,838 Increasing Speculative Fever
*www.agaryshilling.com
A Game-On Analysis, LLC publication
George Brooks
“Investor’s first read – a daily edge before the open”
Investor’s first read, is a Game-On Analysis,LLC publication for which George Brooks is sole owner, manager and writer. Neither Game-On Analysis, LLC, nor George Brooks is 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. References to specific securities should not be construed as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.
