|Dow||-195.84 to 17,191.37|
|S&P 500||-27.39 to 2,002.16|
|Nasdaq||-42.44 to 4,639.06|
|10-YR Yield||-.101 to 1.724%|
|Gold||-$6.40 to $1285.30|
|Crude Oil||-$1.95 to $44.28|
Investors Feel it When Fed, Foreign Central Banks Battle
The last few days, it’s been all about earnings. And today there was a bit more news on that front (See below).
But the Federal Reserve took center stage in the afternoon, and for good reason! We’re seeing an intensifying brawl between the Fed and foreign central banks over the dollar, deflation, the euro-zone debt crisis, and the future direction of interest rates here and abroad … and investors were looking to policymakers for guidance.
|The Fed took center stage today.|
So what did the Fed do and say at its first policy meeting of 2015?
First, it cited continuing improvement in the jobs market right off the bat in its post-meeting statement. The statement noted that “Labor market conditions have improved further, with strong job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources continues to diminish.”
Second, the Fed immediately followed that up by a fairly sizable section of text warning about low inflation. Specifically, the statement said that “Inflation has declined further below the Committee’s longer-run objective, largely reflecting declines in energy prices. Market-based measures of inflation compensation have declined substantially in recent months; survey-based measures of longer-term inflation expectations have remained stable.”
Third, the Fed reiterated that it can be “patient” in raising rates, but that it sees “balanced” risks for economic activity. That indicates the Fed isn’t tipping its hand about which way it’s biased to act.
Fourth, the Fed was able to get unanimity at this meeting for the first time in a while. There were no dissents, in part because the makeup of the Federal Open Market Committee has shifted in the New Year.
|“Your risk of getting bloodied in this money war is growing by the day!”|
The reaction in markets was rather bloody and tumultuous. The dollar, stocks, gold, oil and other assets fluctuated wildly after 2 p.m. Eastern as investors attempted to assess what the latest Fed comments mean about the future direction of policy.
So what’s my take?
I believe the Fed is embroiled in an increasingly violent “Global Money War” with foreign central banks and investors. It wants to move short-term rates off zero. But its compatriots overseas are taking increasingly diverse policy paths, complicating the issue.
Consider: The Swiss just allowed their currency to appreciate. But many other countries are trying to undercut the greenback to gain a competitive economic advantage.
The corresponding rise in the dollar is putting downward pressure on commodities and inflation expectations, and that’s what the Fed appears to be getting more worried about. That increasing concern could lead to verbal intervention before long, one reason why the dollar rally looks increasingly vulnerable in the short term.
I’ll have much more on this topic in coming days. But suffice it to say that volatility is on the rise — a key reason why this “Bloody Wednesday” for key asset classes may just be the first of many. That’s also why you have to play close attention to the next handful of Fed meetings in 2015 … because your risk of getting bloodied in this money war is growing by the day!
So what do you think about the Fed’s latest comments? What do they mean for currencies, commodities, stocks, and interest rates? Are you a buyer on this latest news? A seller? Or are you paying more attention to the latest slate of earnings than Fed policymakers?
|Our Readers Speak|
On “Fed days” like today, lots of trend changes can come out of the blue. Heading into the session, though, you weighed in on everything from oil to stocks to currencies — and for that, I’m thankful!!
Reader Myron R. said he’s still looking for a rising dollar and falling oil, after a countertrend move of limited duration. His comments:
“Oil is due for a short term bounce, and the dollar to drop. But longer term, the dollar continues to rally, and oil drops to the upper $30s. The stock market will continue to grind higher, peaking in May or early June with the fed raising rates in September.”
Reader Osvaldo K. also said he thinks the dollar is headed higher, and that “contra-dollar” stocks could suffer as a result. His view:
“Now is the time to get out of stocks which profit from a weak dollar, since the ‘world bankers’ never work in tandem and this time it will be no different. Most of the time they do not understand the whole picture.”
I definitely appreciate the perspectives. But I have a hard time playing along with the dollar trend anymore — even as I had been embracing it. Too overbought for my tastes!
As for oil and energy stocks, Reader Mary offered an interesting take on what government might do. Her view: “As much as I would hate to see the U.S. support our oil producers, I would rather see that than see the Saudis succeed in killing off our oil industry. The price of oil WILL rise again. It is just a matter of how long and how much.”
Finally, on the subject of currency movements and the stocks impacted by them, Reader Jaegs said:
“I hear all of these companies who are reporting and missing their numbers blaming the euro, the strong dollar, oil, etc. But I have to wonder if these big misses are really the cause. Or are these just the easy excuses for the execs to make when there are really other underlying problems that they aren’t fessing up to?”
Good point, Jaegs. Strong managements and strong companies can handle currency fluctuations by hedging or strategic moves. Others fall by the wayside. But I will say that the magnitude and speed of the dollar’s move over the last several months has been a legitimate challenge for a big swath of Corporate America.
Any other thoughts on the greenback? Or earnings trends? And how about oil? Then head on over to the website and weigh in!
|Other Developments of the Day|
Apple (AAPL, Weiss Ratings: A+) blew away earnings estimates in the fiscal first quarter, reporting profit of $18 billion, or $3.06 a share. That compared with an average estimate of $2.60 a share.
Revenue climbed to $74.6 billion, far above the $67.7 billion analysts were looking for. Strong sales of the iPhone 6, and a large revenue surge in China, helped fuel the results, sending its shares higher.
Aircraft manufacturer Boeing (BA, Weiss Ratings: B) also tried to help the stock market’s cause. Core earnings surged 23 percent to $2.31 a share in the fourth quarter, beating forecasts by 20 cents a share. Orders for 2014 rose to a record 1,432 planes.
Sorry, everyone … we screwed it up! That’s the word out of the National Weather Service, which apologized for forecasting an epic blizzard in the New York City metropolitan area. The city got less than a foot of snow instead.
But let’s be fair — Boston, Providence, and other parts of New England got pounded hard. Worcester, MA recorded 34.5 inches of snow — the most in any blizzard ever!
Greek stocks and bonds got crushed yet again overnight, with the Athens General Index plunging by more than 8 percent, amid concerns over the newly elected government. Prime Minister Alexis Tsipras has promised Greeks he will renege on austerity and debt agreements previously struck with Europe. That is boosting speculation the country will get booted out of the euro currency union.
Jordan’s government said it would strike a deal with the terrorist group ISIS, releasing an Iraqi female prisoner Sajida al-Rishawi if ISIS would free a captured Jordanian pilot Lt. Muath al-Kaseasbeh. Al-Rishawi has been held for years for involvement in a 2005 Amman hotel attack that claimed 60 lives.
If these or any other news stories you’ve come across have you pondering the investment implications, don’t keep your thoughts to yourself. Share them at the website with me and your fellow investors!
Until next time,