3/27/2015 0 Comments
The S&P sold off pretty much all week. I would have expected a larger bounce today than +0.2%. It is encouraging biotech and airlines are getting their mojo back. The biotech sector was helped by the rumor of Shire buying orphan drug maker BMRN. Maybe biotech and airlines could become market leaders again. This sounds more like a hope than a view. The food products stocks have a bid on the Heinz KRFT merger, but this news came out the other day, so I don’t see why this should lead stocks higher. HLF is rallying on some business practice investigation news, which cannot be extrapolated to other parts of the economy. Utilities and health care are the leading sectors today. Energy, tech, and financials are at the bottom. This is not a bullish sector rotation. So the M&A news is positive, but I don’t see a lot else to be excited. If the market fades into the close, this might be an ominous sign of more weakness to come. If the market scratches out a small gain, the bulls shouldn’t get too happy about that. As I said at the beginning, a strong market would have a much bigger bounce than +0.2%. Liquidity memo to Oaktree clients, written by Howard Marks, may have spooked the bulls. Keep risk down until more positive signs come up.
The S&P was at 2062 at the time of the FOMC statement. Obviously the S&P had a dramatic rally subsequent to the release. So if the S&P drops below the 2062 level, that would be a clear sign of weakness. The market has been giving off negative signals with the blow off top in biotech on Friday and the marked weakness in semiconductors over the past several weeks. Today's selloff makes more sense than the previous couple days given the weak durable goods data released today. I view the fact that the market could not rally to a new all-time high following the FOMC as another negative signal. The S&P reach 2115 and the all-time high is 2120. Energy looks like the only safe place to be long right now given the recent USD weakness. This is ironic given the fact that energy is the sector which broke down first in the second half of last year.
3/16/2015 0 Comments
Whoever thinks the first 50 bps of Fed Funds rate increase is going to slow the economy is mistaken. Banks may begin to lend more if the deposit rate increases a bit. All this talk and waiting is crazy. The economic numbers are in no way consistent with such weakness as ZIRP implies. Yes the USD will strengthen, but the economy is not so dependent on exports to warrant significant weakness. In fact, stocks which import some of their cogs might see an improvement in margins. This will help strengthen the weaker economies around the globe and reinstate some confidence in the world's economy. The Fed Funds rate needs to get into the 200 - 300 bps range before it begins to put the brakes on the economy.
Michael Grove, CFA