Equity Markets Mixed |Having Your Cake and Eating it Too

Having your Cake and Eating it too

equity markets mixedWednesday Recap: Equity markets settled Wednesday with mixed to moderate gains after a bit of a roller coaster ride following the FOMC 2:00 PM policy statement and 2:30 PM press conference by FED Chair Yellen.

The DJIA at 17,935, S&P 500 at 2100.44, and NASDAQ at 5064.88 each posted gains within a few basis points of +0.20%. Note the S&P 500 peg at 2100 and NASDAQ settling within a point of its March 2000 high which stood for 15+ years.

The Russell 2000, -0.10% at 1268.33 was the laggard among broad based market averages, but keep in mind the annual reconstitution of all Russell Indices next Friday is certain to provide plenty of volume and price action.

The biggest concern remains the DJ Transport Index, -0.4%, at 8313.94. Market averages had been at their lows of the day going into the 2:00 PM FED statement as concern over a -1% move in the Transports was largely to blame for stocks turning their morning gains to losses by early afternoon.

It was a bit of a relief that the DJ Transports bounced off the 8250 level intraday for the third time in 3 weeks and narrowly avoided posting its lowest close in 8 months.

Equity Markets Mixed | Transports Continue to Befuddle

equity markets mixed

The glaring underperformance by the Transports has been an enigma to market strategists citing an uptick in the economy, and a pain in the butt to Dow Jones Theorists for the extreme divergence from the new highs put in by the DJIA and S&P 500 the last few months.

My read is that there are a few negative influencers on the fundamental and sentiment of both the Railroads and Airlines (LUV) since early this year, causing institutional money to reduce exposure in both sectors.

The FED statement and Yellen press conference had a little something for everyone. Despite citing moderate growth in every Federal Reserve region as well as an uptick in wage growth and less “slack” in labor markets, GDP and inflation forecasts were lowered for 2015.

No doubt they were too high and should have been lowered earlier in the year.

Yellen stated on more than one occasion that she feels an initial rate hike will be warranted before the end of the year. She also emphasized the importance of focusing on the “pace” of eventual rate increases, rather than the timing of the initial rate hike. Is she attempting to “thread the needle” too precisely with this statement?

It’s as if Yellen is saying “We’re going to start raising rates, but we’ll be raising them so slowly you’re gonna love it!!”

Really?? What if the economy “Rips” in 2016?, will the FED stick by its’ “data dependent” mantra and throw in 1 or 2 50bp hikes to “catch up” with market rates?

Don’t tell me they’re so confident of their forecasts 24 months out that they know with confidence rate increases will be slower and more gradual than the 2004 – 2006 cycle. Official FED forecasts for inflation and GDP have been way off the mark recently, for years, why should the next 2 years be any different? Wait!! Isn’t there an election in 2016? Just thinking out loud.

The key takeaway from all this….watch the Fed Funds futures for September and December the next 4 to 6 weeks as a better guide than the parade of FOMC officials sure to hit the speaking circuit the next few weeks as they come out of their post FED meeting quiet period.

The Early Line: US Equity futures are fractionally higher in early trading.

Greece is an unresolved mess….ignore it for now.

Keep a close watch on the Financials and Technology space for potential marker leadership.

tanderson@mndpartners.com tjanderson56@gmail.com

Twitter: @TJAnderson1

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