Surprise, surprise. The Federal Reserve isn’t done just yet.
Market Roundup
After raising benchmark interest rates in December by 0.25% for the first time in nearly a decade, it seemed that Fed policymakers slipped into one-and-done mode – with no more rate hikes or even the hint of one – over the past five months.
Then yesterday, the Fed caught markets by surprise. The minutes released from its last meeting in April showed that Fed members expect another interest rate increase is warranted as early as mid-June if economic data continues to improve.
Talk about a wicked curveball, just as investors had come to believe in a dovish Fed.
|
|
| Stocks, already under pressure in recent weeks, plunged on the news. |
Just a month ago, Fed funds futures markets were pricing a ZERO percent chance of a rate hike in June. And the odds of a hike by December weren’t much better than 50/50. But that was before yesterday’s minutes.
It was no surprise that stocks, already under pressure in recent weeks, plunged on the news. In fact, the Dow dropped nearly 300 points from 2pm yesterday to this morning’s low. Commodities also did an abrupt about face, with gold and oil plunging, as the dollar surged higher.
Markets hate uncertainty, and the Fed just stirred fresh doubts about the direction of interest rates
In fact, even before the Fed news, there was already a growing list of market trends to worry about.
#1: Sour Seasonality: It’s the merry month of May, but for stocks, it’s traditionally time to sell and go away.
Historically, May through October is the worst 6-month period of the year for stocks, according to S&P 500 data going back to 1928.
According to research by Merrill Lynch, the S&P 500 is up only 63.6% of the time during this period, while stocks gain 70.5% of the time from November to April. But it gets even worse.
Whenever stocks are unusually weak during the seasonally strong months (Nov. – Apr.), they perform even worse during the traditionally weaker summer and fall seasons.
The S&P 500 just declined 0.7% from November 2015 to the end of last month!
In the past, when stocks have declined during this seasonally strong period, the S&P 500 has suffered an average correction of 12% during the subsequent May-Oct. timeframe!
#2: Rising Credit Stress: Another big worry weighing on the minds of investors is the fragile state of credit markets, which could easily go from bad to worse in a higher interest rate environment.
Remember, high-yield markets got crushed earlier this year with junk bond spreads relative to Treasuries blowing out to the highest level since the 2008 financial crisis.
Granted, credit conditions have improved over the past month, but high-yield distress remains at levels well above those seen at prior market peaks.
If the Fed follows through with more interest rate hikes this year than expected, credit market conditions could quickly deteriorate once again, and it won’t just be the energy sector under stress the next time around. Stay tuned!
|
Rare retail good news: This morning, retail giant Wal-Mart (WMT) gapped up nearly 8% at the open after reporting profits of $0.98 per share, well ahead of street estimates that called for $0.88. It was WMT’s biggest earnings beat since 2001, and stands in sharp contrast to disappointing results from Target (TGT) and Macy’s (M) among others. Consumers are still shopping somewhere, even if only at rock-bottom prices.
Key data dates ahead of next Fed meeting: The Fed is on record saying a rate hike could come as early as its next policy meeting June 14-15, IF economic data continues to improve. So here are a few upcoming big data release dates to watch:
May 27: Watch for revisions to first quarter U.S. GDP. The initial read was a pitiful 0.5% growth during the first three months of 2016, but economists will be watching for a potential upward revision.
June 3: The May jobs report will tell the Fed how U.S. labor markets are doing. April was disappointing with only 160,000 payroll gains, well below the 224,000 average over the past 12-months.
June 14: Retail sales have been on an upswing and the May retail sales report will be a widely watched indicator of how well U.S. consumers are spending. This data has added significance since it’s reported on the morning the next Fed policy meeting begins. Stay tuned.
Fed-induced market swoon: As reported above, the S&P 500 Index slid to a seven-week low, breaking below the key 2,040 support level, and commodities got crunched too, after odds of the next Fed interest rate hike increased sharply overnight. Perhaps more telling, copper, crude oil and gold all plunged as the dollar strengthened. Metals and oil are among the best performing asset classes so far in 2016. Ditto for energy and mining shares. Is now the time for a reversal of fortune?
I want to hear what you think. Are we about to witness trend reversals in several key markets? What’s your outlook for stocks, gold and the dollar: higher or lower over the next three months?
Join the discussion below by sending me your comments!
Good investing,
Mike Burnick
Mike Burnick, with 30 years of professional investment experience, is the Executive Director for The Edelson Institute, where he is the editor of Real Wealth Report, Gold Mining Millionaire, and E-Wave Trader. Mike has been a Registered Investment Adviser and portfolio manager responsible for the day-to-day operations of a mutual fund. He also served as Director of Research for Weiss Capital Management, where he assisted with trading and asset-allocation responsibilities for a $5 million ETF portfolio.
{ 45 comments }
It is so easy to lower interest rates and very much harder to raise them. During more normal times folks have an appreciation of the true value of money. Now with years of questionable investments at current rates there are so many more debt bombs to be concerned about. Black swans can come from many directions, but I suspect money will splutter to regain some value before many realise what has been going on and how little it is really worth. Trying to recover 3% interest rates over time will expose the most wasteful extravagance beginning with governments.
On a personal note my funds left the market a little over two weeks ago and we are now in almost 100% cash equivalents positioned to take advantage of market turmoil as it unfolds. Good luck to you all.
Smart move Howard this market is running on fumes and hot air. Fed hot air. With all the Fed speak going around its obvious to one and all as to who is manipulating the stock market and killing precious metals. The Fed has no love for gold absolutely abhors it. The Fed looking at numbers? WOW 5% “unemployment” but with 37% of the population willing to work but cannot find a satisfactory job. Boy lets hike the rate on this bit of good news. The “jump” in Walmart stock makes me laugh more orchestrated BS. Walmart themselves went on the record a couple months back to say their numbers would stink and the numbers for retail as a whole stink except for that retail killer Amazon. If the Fed raises rates this year someone should check the ashtray in their meeting to see if they have a marijuana habit.
Won’t an increase in rates by the Fed. bump up the cost of paying the debt service on our 20 Trillion National Debt? I think the Fed has to keep rates low or our country will go bankrupt just paying the interest on the insane level of debt we find ourselves in!
Yes, and a lot has happened since the minutes of 3 weeks ago. Poor labor numbers etc, so enough excuses not to raise them
I agree
Exactly!!
Yes Leo you have discovered the canary in the coalmine. The huge National debt is why we are in this mess in the first place it has nothing to do with helping the economy. The Fed comes first and foremost to help a misguided and failed government keep their head above water. The well being of the rest of us is further down the list.
If you believe that the as you called “Credit Market” is for real, you are probably delusional. Taking credit by the banks to play on Fraud Street (sorry Wall Street) and giving credit to student loans at 7% interest ( 2800 % profit), you may be part of the modern political mafia economy.
NoO mater how long time you have been in business and how many credential you can show, all you explained above as simple BS.
Lets now talk business.
Fraud Market need to be restructured – here is the scheme example:
Within 1 year all companies need to reconcile all type and forms of shares in two groups:
A) Shares equal to not more than 85-80% from the capital aced the company have in form of buildings, equipment, but excluding cash and produced goods (sorry Pharma you no longer can scheme everyone). These shares can grow only after the company invest in expansion (this will warrant the process of expansion), The value of these aced will depreciate with the time and will required renovation (gap equal to inflation %)
and
B) Shares not back by anything – they can loose value for which the investors will be responsible
Public no longer can buyout when they fail.
So lets the casino works!
In case the company bankrupt, selling the capital aced will pay back the investors.
Dividends will be paid from the profit of selling good, not “thin air”.
In such scheme what the Fed do or think will no longer matter.
This also will put natural stopper for monopoly acquisitions.
To Big to fail will have two years to become compliant with the proportional rule – size not bigger than 1/256 (or 365) from GDP. After two years voluntary restructuring they will be sold by the government. When they bankrupt we even will not notice.
And the last that will resolve the so called “inequality” – implementation of personal compensation etalon (like we have etalon to measure length, weight, speed and etc.) – here is the formula – 256 working days x 8 hours per day x 60 minutes per hour x minimum wage ( you can see that only variable is the minimum wage). If you want your compensation to grow you need to help the base of the pyramid also to grow – Damon become billionaire without knowing what is going on in the mail room.
Because after the initial share sell, they value do not mater for the company – it is mater only to financial crowd that take fees. Each company at the time of stock selling will have 10% cash stock to pay back what ever value dropped at closure ( probably not less than 10 cents per share in case they go under).
In such climate the market again will become recreation for rich BS – because the history tells us that money do not grow on tree, they have no value and cannot create value – they are only instrument for value exchange.
If you don’t believe me here is example – take a apple, a orange, $20 dollar bill, copy only one side of the bill, cut piece of news paper with same shape and put them together.
Hope you got the picture.
Banks are the place where the money need to be stored, not the Fraud Market
Best
Dimitre
B)
The FED must be destroyed,and the “powers to be”jailed for sabatoging our monetary system. The people will rise up and the crooks and thieves in the fed will be jailed.
Would you rather be in a soup kitchen line up, or have a strategy to avoid the country from becoming as a third world country today? I see your point. Get things to the bottom as quickly as possible, and rebuild the country now, today, rather than later? With time, perhaps, come solutions too? Remember, though the money is being pumped into an economy, so too is inflation being controlled by removing cash currency at the other end. rain loads of cash have regularly been removed from the flow. remember the great train robbery? Where a certain Ronnie Biggs and his gang robbed the train of aprox. /6million cash 1963? I suppose these same methods are in place today? Perhaps? Perhaps the debt will never need to be repaid? Owing yourself money is not easy to understand.
martial law my friend. nobody rises up against the armed forces!
This is where 2nd amendment comes in. Our forefathers understood this.
Look. See. Listen. See. Look. Just as all things in the world are forever in a circular motion, beginning to end, so too is the markets. Perhaps the next move will contain both a lower interest rate plus a QE of $100Billion? WOW! That will certainly push the markets, perhaps? And the economy, perhaps? Just take a look at what transpired recently, where the $Euro Zone said that their QE program was not large enough to be an influence, and accordingly, boosted their QE program dramatically. WOW! This demonstrates the determination to force the economy world wide, and produce desirable outcomes. What if? The perfect stategy of the FED was to bump the interest rates USA, and create a desirable tool for desirable results, when those same interest rates get taken off the table, and a QE of substance is added too. Perhaps? If so, hang on tight!
Perhaps rates should never have been lowered. The economy would be better off and we wouldn’t have hurt so many Seniors. Guess there is always a bunch of “fat Cats” who think money will solve their ills.
Their site not common good.
In a crazy market like this one certainly has to be nimble in deciding when to buy or sell. Yesterday the price of gold dropped to $1258. on various worries probably making the ant-gold market quite happy, but this morning it was back up to $1280. I bought shares of Great Panther Silver GPR earlier this year for .44 and was debating whether to take some profit off the table. I checked the bid $2.10 ASK $2.11 and based on my conviction that we were still in a bull market for precious metals in spite of the one day drop on negative market news had put in a partial SELL order @ $2.15 and it was exercised first thing this morning but the market closed with gold down again @ $1255. Now I will wait for another up day and sell covered calls on another third, so the worst that can happen is that the price continues to rise above my strike price and the shares get called away but I not only keep the premium and earn the difference between todays bid price and the strike price I decide on, but I will still have a third left if the bull market continues. Hedging my bets now that I have my original investment off the table. Am using the same strategy on 2 dozen other stocks I picked in the past year that are up a minimum of 25% with a high % at a DOUBLE and even a few triples. The judicious use of :stink bids: in both buying and selling can result in some pretty impressive profits on a yearly percentage basis if you stick with a trend.
Lets be honest.. This whole situation has been caused by the Federal Reserve ..Correct…
You bet you..
They should man up as they say and get interest rates back to normal. The additional income people would make with rising interest rates would put more money in savers pockets to spend and stimulate the economy.
This would make the Federal Reseves job a lot easier.
Hey Mike — my 3-month forecast calls: stocks to test last August lows, the dollar index to test year highs, and surpisingly, even with a strong greenback forecast, gold to reach $1460 on a dire economic/political environment. We’ll see what happens.
No way the Fed increases rates. If rates rise, economy goes down, Trump wins, Yellen loses her job. Does Yellen care more about stemming inflation or keeping her job?
If the hike is the same as the first hike it will be likewise miniscule.
Trump already said she was not going to be his Fed Chair.
If the Fed had started to gradually raised rates to 3% three years ago, even at the expense of slightly slower growth, a lot of the craziness and distortions in the economy could have been avoided. Of course that would have required some control over government spending to hold down interest payments on the debt.
Raise rates to 3% and the economy will implode with its overburden of debt. All this Fed speak is to control markets and peoples thinking. Like Japan American investors have become market junkies looking for a government interest rate hand out. Its a mess. Investors are nothing but Central bank marionettes being strung along by vacuum statements.
Target is a special case. I simply cannot uderstand why someone whose primary interest is to sell a shirt or some groceries would want to embroil themselves in a political controversy, certain to please a few and anger many. Somebody needs to be fired. Jim
Jim what is so hard to understand about Target they have a death wish. Look at how their move into the Canadian market turned out. Retailers are trying to be all things to all people today to flog their made in China crap. Target has gone overboard and fallen into a trap. They have a target painted on their back so to speak. All these brick and mortar dinosaurs will be gone in 25 years. They know this but are still flailing around trying to figure out how to adopt. Going from the king of the hill to the retail junk pile can happen fast now days. I am happy to be retired and just a spectator. Retail will be like the gladiator wars of the past.
Remember last Fed Meeting in April when they said everyone except 1 voted to keep rates unchanged. But now w/ new Congress law saying Fed has to show Minutes to be more transparent. And Yellen said she controls the decision to raise, Lower, or keep rates the same. Will she does not anymore, It must be voted on w/ all voting Fed Members.
And it showed last April meeting there were a lot more then just 1 in favor of raising rates in June. And if this BS data keeps up w/ current levels as of now, Fed’s are backed into a corner and have to start to raise 2-3 times this year. At the very worst time possible!
Gerald H
Your right they are backed into a corner and people in this position get desperate. If they pull the trigger on a rate increase all holy hell could break loose and they know it but like Asian culture they want to save face and some small shreds of credibility but it will all backfire. If the market nose dives after a couple rate increase the Democrats might be tagged with this one going into the election. I feel they are building up for a couple early hikes before the election but the Democrats could inherit the mess that follows.
The Fed is perplexed and has no good choice. Leaving Fed rate low results in market forces raising the rate of borrowing anyhow. Increasing the Fed rate endangers our fragile, false economy to crash and increases the national debt such that our government goes bankrupt. The moral of this corrupt story: When banks gain control of a nation’s currency, the only prediction is chaos and ruin for the nation and membership.
Is the Fed incompetent? Are they sinister agents of the Deep State? OR, is allowing a select group of lifetime bureaucrats to centrally manage an economy the size and complexity of the U.S. simply an impossible task and therefore a very bad idea from the start? Jim
I think falling metals are a buying opportunity before the next leg up. The Fed will go dovish in the face of weakening metrics and jittery investors will propel metals higher.
Kevan Ashworth
Wow hard to say with so many Black Swans seem to be swimming in the Economic Pond these Days . First U.S. rail traffic in April was down by almost 12% compared to April of 2015 . Next the Baltic Dry Index is still going down . This suggests trade is drying up . We also have subprime in the Auto Industry and defaults on vehicles going higher at a time when a record # of cars are coming off lease . Than there is a big fat black swan to the tune of 19 Trillion and counting that needs low interest rates to survive . Just 1/4 % means that black swan needs another 40 -50 billion just to pay off its interest !
I wonder if they will raise rates with all of these things overhanging the markets ??? Rationally I do not think they can and will be fully surprised if they do !
Unfortunately Vinman the Fed does not look at the real life metrics you are describing. They look at fudged numbers because fudging is all they know.
Gordon
So true so tired of hearing there is no inflation . Truth be told we have a great Stagflation , That 70’s Show all over again LOL !!! Have any of these no inflation people ever gone to a grocery store ????
This trigger of hike in interest rate can bring Gold to the low of 1000 dollars.
Even if gold falls to $1000 what a buying opportunity unless you loaded up at a higher price. Have the mentality that gold is worth $1000 or 900 or 750 as Harry Dent proclaims but also think back that your dollar buying power has declined by 94% over the decades and what will it be worth in the future. Governments are tired of cranking out more and more useless currency so the want to go to electronic currency and zap they can clean out your account at the touch of a button. Utter control is what they are after. Quote from Mayer Amschel Rothschild ” “Give me control of a nation’s money and I care not who makes it’s laws”
If gold were to go to 1000 or 750, it could only do so in a deflationary period. That being the case, it still retains its value as all other things deflate accordingly, including the value of currencies. Gold will ALWAYS retain its relative value as it remains the only real money. And, if you are not aware, the banks work with a shadow gold standard. Take a look around and see which central banks have been ramping up their reserves of the ‘barbaric’ metal.
In addition to the reasons mentioned above, conttolled steady devaluation of the Yuan will provide the Fed with the reason to continue to remain dovish “due to ongoing uncertainty and weakness in the global economy”
There is no chance in hell the Fed will raise the rate in June. Just the same smoke and mirrors.
Your right Jim. Their efforts to keep the markets spooked and off balance is the reasoning behind all this dovish hawkish back and forth crap. Again the gold market being a smaller market took a bigger hit than the Dow Jones and its this market they want to manipulate. The smaller the market the bigger the manipulation achieved. They are after all money managers and not gold bugs. Unfortunately as older generations pass and new ones are born the newer generation does not have the same affection for the yellow metal that we old farts have and the ones that have gone on before us but they will learn.
Gordon
So true those who forget there history are doomed to repeat it . Most recent example is the lessons forgot about North Korea getting Nukes have now been repeated as a Nuclear Iran comes onto the scene .
Maybe the Asians will be the ones to finally teach the new generation that Precious Metals as a store of wealth is very important !!! China loaded there new physical exchanges with 60 million ounces of silver in the last 6 months , Interesting development indeed .
Vinman
The Fed from Shakespeare
Double, double, toil and trouble;
Fire burn and cauldron bubble.
Double, double, toil and trouble;
Something wicked this way comes!
Eye of newt and toe of frog,
Wool of bat and tongue of dog,
Adder’s fork and blind-worm’s sting,
Lizard’s leg and howlet’s wing.
Double, double, toil and trouble;
Fire burn and cauldron bubble.
Double, double, toil and trouble;
Something wicked this way comes!
In the cauldron boil and bake,
Fillet of a fenny snake,
Scale of dragon, tooth of wolf,
Witches’ mummy, maw and gulf.
Double, double, toil and trouble;
Fire burn and cauldron bubble.
Double, double, toil and trouble;
Fire burn and cauldron bubble.
Double, double, toil and trouble;
Fire burn and cauldron bubble.
Something wicked this way comes!
It’s not the Fed. Congress created the Fed and gave them 2 mandates. If the Fed let interest rates go market , the rates would go up with the risk so that congress would have to create more debt to pay the interest rates. Therefore, congress wouldn’t be able to create debt to buy votes. It’s going to come down to a harsh solution.
If brick and mortar stores are on the way out, why did the company that owns T J Maxx, Marshalls and Homegoods announce plans the other day for some 2000 more stores in coming years. Of course, they largely sell overfstocks and such, and people do like to try on clothing, but they do not seem worried about on-line competition.
Little concern for the current turmoil. My moneys in ammunition for what’s coming. I will prevail. Mike