A Little Confidence
As expected, the Fed didn't have much to say about
the U.S. economy or future
stimulus plans that could be construed as positive. The Fed acknowledged that
the economic recovery has slowed in recent months. But I think we all knew
that.
The Fed also announced it will reinvest the proceeds of its
mortgage-backed securities into Treasury bonds. The $10 billion a month the
Fed is making off these assets is quite literally a drop in the Treasury bond
market's bucket. It will do little to effect interest rates or
liquidity.
Investors are disappointed with the Fed's reaction to the
recent downturn in economic growth. That's evident in the futures market,
where Dow Industrials futures were down 145 points in pre-market.
Quite frankly, it's no surprise. The Fed seems behind the
curve and unable to come up with a solution for weak economic growth. Now,
the Fed is responsible for monetary policy. They can't do much for cyclical
unemployment. But they can speak with confidence and act when they don't have
confidence. Yesterday, the Fed did neither.
The ultimateissue
with the stock market and economic recovery is confidence. Investors need to
be confident in growth to put their money at risk. Corporations need to be
confident in growth in order to start hiring. And consumers need to be
confident that their employment status is stable and their income is growing
in order to spend money.
Right now, confidence is not what you'd call strong. Polls
of CEOs reveal that they are confident, but they haven't started hiring in
meaningful numbers. Consumers are confident enough to increase their spending
by roughly 2.5%, but you still get the sense they are looking over their
shoulder.
Unfortunately, investors seem to have absolutely no
confidence in the stock market. Positive earnings results are not being well
received. Clearly, there is skepticism that earnings growth can continue. Or
perhaps investors are still shell-shocked from the financial crisis and
recession.
There is a definite
disconnect between the pace of recovery and the daily headlines in the
financial media. Sure, we know the recovery is slow. But it's not like that
wasn't expected. If you read my Forecast for 2010, you knew
GDP growth was unlikely to exceed 2.5%. And
that's what we're on pace for.
But if all you read is headlines, you probably think the
world is falling apart at the seams.
Of course, debt issues and unemployment are problems, but
hiring will pick up. It's just a matter of when. I continue to believe that
investors should buy the dips.
TradeMaster Jason
Cimpl has his readers watching the U.S. dollar.
Economic data aside, the relative value of the dollar is a major catalyst for
asset prices.
"I am watching [the U.S. dollar] closely. While no
reversal pattern has emerged, the bearish momentum has decreased and I
suspect a turn is close. A rising dollar is bearish for the market,
especially commodities, and could result in us closing out our longs.
European currencies were crushed overnight. A falling euro and energy prices
are very bad for solar, which could be a short today."
Jason has been doing a phenomenal job helping his readers
take advantage of the market's upside and using stop losses to protect their
money against declines.
If you haven't checked out TradeMaster Daily
Stock Alerts, you can do so free of charge with the TradeMaster
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As always, you can
write me with your comments at dailyprofit@wyattresearch.com.
