With the focal point(s) of the stock market appearing to move around a fair amount lately, it is important to keep up with all the issues. By my count there are six worries/concerns at this time including the dollar, rates, the Fed, the state of the economy, valuations, and the election.
Although there have been intermittent moves to the upside at times – especially on an intraday basis – the majority of the action over the last month or so has been to the downside. Perhaps this is simply the traditional seasonal pattern playing out. Maybe uncertainty is the key. But whatever the reason, the action has been sloppy, to say the least.
S&P 500 – Daily
To be sure, the recent surge in both the dollar and interest rates has been a driver. And on the rate front, it is important to recognize that this is not just a U.S. issue. No, bond prices have been falling in places such as Germany and the U.K. as well.
On this front, many argue that the primary issue is the repricing of what I call Fed expectations. By now, most folks expect Janet Yellen’s Fed to raise rates in December. But the real question traders appear to be wrestling with is what happens after that?
Uncertainty Reigns
On one hand, you have Fed Vice Chairman Stanley Fischer, among other Fedheads, saying that there is a risk to keeping rates too low for too long. After all, this was one of the primary causes of the mortgage crisis that occurred a decade ago – and folks haven’t forgotten. Comments like this would seem to argue that the Fed knows it is behind the curve and may need to try and play catch-up in 2017.
And then on the other hand, you have the Fed Chair herself issuing what appear to be dovish, cautionary comments the very next day. Lest we forget, Ms. Yellen said in her most recent speech that her merry band of central bankers may allow the economy to run hotter than normal for longer than normal in order to try and create a more “emphatic” economy recovery.
