ZIRP Rules Again | Zero Interest Rate Policy

ZIRP Rules AgainThursday recap:  US equity markets rallied sharply, with broad market averages regaining all of their losses and then some by the end of the day.

The stock market rally actually started right at High Noon when stocks were only slightly in positive territory and at their lows of the day.  From that point on, the buying was steady and relentless as prices moved consistently higher into the 4:00 PM close.

The market was not without its issues, in some respect making the rally even that much more impressive.  

WMT, -1.2% at  $59.33 continued to be a source of funds for Big Dough as it could not even muster a dead cat bounce after the worst 1 day percentage decline in the company’s history.

NFLX, -8.35% to $101.10 showed us that not even a revenue and earnings miss by the streaming juggernaut can throw the market off its ZIRP infused charge 2 weeks into the final quarter of the year.  After all why worry over an 8% decline, when at the end of the day NFLX still has greater than a +100% gain YTD.

Banks continue to underperform.  Going into Thursday, BAC was the only one in the group that had responded positively to Q3 earnings.  As expectations continue to shift away from any rate hike before year end, the curve has flattened, with the US 10 year yield testing the 2.00% level all week.   2.02% at last look early this morning.   

ZIRP Rules Again

ZIRP Rules Again | Zero Interest Rate Policy

Thursday morning a sizeable earnings miss by GS, +3% to $185.05 and barely beating recently lowered expectations by C, +4.4% to $52.97 was shrugged off by a “Risk On” market as both were given a “pass”.  

The Goldman earnings miss was explained away by much lower returns in Fixed Income, Currency, and Commodity Trading.  Since this coincided with the volatility in Q3 investors viewed it as a “one off” at least for now.  Citigroup’s results were given a shot in the arm by sharply reduced legal expenses.

While some may view this as a non operating item, when Citi can post a sharp decline in legal expenses it’s a titanic shift in their business model.

ZIRP Rules Again

While Thursday’s rally was not a full blown Risk On day,  It certainly felt heavily ZIRP infused.  Most notably, stocks; including oil stocks,rallied without any help from Oil, as the NYMEX contract remains stuck below the stubborn $50 resistance level.

Market Internals also continue to be constructive as volumes were brisk and close to 20% ahead of the the declines Tuesday and Wednesday.  Breath was very impressive as advancing issues beat decliners by 4 to 1 on both NYSE and NASDAQ.

ZIRP Rules Again

The S&P 500, +1.5% at 2023.89, closed fractionally above the September 17 intraday highs, while  NASDAQ, +1.8% at 4870 and the Russell 2000, +2.3% at 1162.77 played catch up with stronger gains.

ZIRP Rules Again

With futures pointing us toward a marginally lower opening this morning expect tremendous focus on the 2021 level for the S&P500.  That was of course the intraday high from September 17, and while we closed fractionally higher yesterday, the next test is to turn that resistance level into support

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