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Dec 14

The Market Today 12/14/15: Posturing

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The last week and a half have not been good for the markets. I believe this is and understatement! The market was trying to push it’s way back above the 2.100 level, before this retreat began. The question I am being asked everyday, is why is this happening? What is behind the violent selling? I believe there are two culprits. First, the price of oil. Since Thanksgiving, the price of a barrel of crude oil has slipped about 25%!! This is a remarkable move, in such a short period of time. This move in itself is due to two things also: the appreciating dollar, and supply issues. We have Iran and Iraq coming online, and the main OPEC nations producing at full capacity. The second reason for this market melt down is simply the market posturing for the upcoming Fed move on interest rates. As we have seen in the past year, when it came time for the Fed to move on interest rates, the market would sell off, preventing the Fed from hiking rates! Volatility is certainly on the rise as a result. When volatility rises, the markets move lower. I have mentioned that volatility would remain on the increase. While it was high in August and September, it came down near the low’s in November, and early December. We are getting pretty close to volatility trading at elevated levels.With this strong sell off, now you see all the bears creeping out of the woodwork, dictating their doomsday scenarios. While there is plenty to be concerned about, I think a bear market scenario is out of the cards. Only a move below 1,820 would change my mind on that.

Posturing: Stocks

As mentioned above, last week was a brutal week for stocks. This week, was off to a rough start. All this volatility and selling is simply the market posturing itself, and thus, trying to promplt from hiking rates.  I couldn’t sleep last night, so the futures were up about 12 points on the S&P around 3am. When I woke up at 6am, they were down about 10! Oil was only down about 24 cents a barrel at 3am. When I woke up, they were down almost $1 a barrell. The market rebounded in the late morning and early afternoon, closing at the high’s of the day!! I tweeted out earlier in the day when the market was selling off, that it looked as though the S&P would visit the 1,992 level. While I didn’t think it would happen today, it did. Once it did, it bounced higher, and closed at the high’s. This is a good sign. While I feel tomorrow and the first half of the day on Wednesday will be very volatile in both directions, I feel the market will move higher once the Fed decision is out of the way! This decision comes out at roughly 1pm cst on Wednesday. Based on this, I would not be afraid of adding to positions at this point, heading into the Fed decision! Should the market break today’s low’s, on a closing basis after the decision comes out, this may change my opinion, and then take a more cautious stance.

Posturing: Bonds

Investors are used to volatilty in the stock market, not as much in the bond market. As with stocks, the bond market is also posturing itself prior the Fed decision. We have seen rates nearly touch the 2.4% level, then retreat, and hit into the 2.17%, and closing today at about 2.23% level. Prior to last week, it was a foregone conclusion the Fed was raising interest rates. My opinion all year, was that the Fed will not hike interest rates at all in 2015. However, my view certainly has been challenged, and I was beginning to think that they very well may hike interest rates on Wednesday. Now, I am more inclined to stick with my original opinion, and go with they will not move on rates. The junk bond market is all but imploding, and emerging market currencies are getting slaughtered. With these events, I am more inclined to think they may stand pat on interest rates. We will find out in less than 48 hours!

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 market posturing!

 

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