No question today was a difficult day. The last three of four day’s have traded lower. Before today, yesterday’s trade made up the gain’s from the previous two down day’s. Today certainly had a different tone. Financial stocks were absolutely buried today. They traded just like they did in January and February. Financial’s are trading lower primarily because interest rates, as shown by the 10 year Treasury, have been trading lower. Back in the sell off of January/February, the key 10 year traded as low as 1.56%. Today, they closed at 1.69%. The main thought by the financial pundit’s out there were the market moving lower due to the threat of the Fed moving interest rates higher. My question, is how can the Fed raise rates? With Europe and Japan at negative interest rates, along with them moving them even lower, there is no way the Fed will be able to raise rates in the foreseeable future, in my opinion. This is the reason the 10 year is moving lower, the European and Japanese Central Banks are moving interest rates further into negative interest rates. So much money coming from over sea’s and into US treasuries are moving our interest rates lower. The Fed will not be able to raise any time soon.
We are on the cusp of earnings season. Alcoa kicks it off next week. The street is concerned about the quality of earnings that are about to be released. The key will not be so much as to what the earnings actually come out to be in for the fourth quarter, but what will be the guidance going forward. Last quarter, the US dollar was moving strongly higher, negatively affecting the earnings of US multi-national companies. Since the first quarter began, the value of the US dollar has moved lower, which should help. The key to the stock market performance this year depends on where the dollar goes. With all this noise, expect the market to remain volatile!
Since the low’s of the stock market on February 11th, the market has moved up strong. What is key, is that the market still need’s to break the cycle of lower high’s, and lower low’s. In order for the market to do this, we need a close on the S&P first, above 2,080, then even more importantly, 2,116. This will break that cycle, and let the market move up significantly into new high territory.
In the short term however, the market simply need’s to pull back. The market hit a low of about 1,810, and moved as high as 2,072! Looking at the chart, you can see the market closed today on a weekly pivot point. From this, I expect a short term bounce to the upside tomorrow. Should this not happen, the market could move and test the 2,020 support level. This is where I would expect a bounce then. If that support does not hold, then a defensive tone may need to be taken in the short term. No matter which direction the market decides it will go, expect it to be a volatile market in the week’s and month’s ahead!
The volatile market does not only apply to stocks, but to bonds as well. Earlier this year, the key 10 year interest rate traded as low as 1.56%, came close to touching the 2% level, before closing today at 1.69%. I can make the case that interest rates on the 10 year can get to the 1.25% level. This will happen if the Central Banks overseas will continue to move even more negative.
Author Sean Rhodes is an expert in financial markets and helping you manage your money. For a no-risk consultation, check out Sean at the following link for more information, and expert advice on portfolio construction, and helping client’s navigate through market’s that are volatile!