Friday’s Stock Sell-Off And The Fed’s Epic Fail

The U.S. Federal Reserve had four possible outcomes coming out of their latest FOMC meeting on Thursday. And it seems that the Fed may have ended up with the worst possible result.  Not only did the Fed potentially forgo their last reasonable opportunity to get off of the zero bound and squeeze in an interest rate increase for a future rainy economic day, but they may have also unwittingly sparked a new wave of downside stock market volatility that they have been so tediously careful to avoid over the last several years.  At least so far, the stock market has voted down the Fed’s latest decision. But now that the chatter and uncertainty about whether the Fed is going to raise interest rates is behind us at least for the next few weeks, what exactly can we reasonably expect from capital markets from here?

Please click on the link to read more of my article on Seeking Alpha.

The Worst-Case Scenario For The Fed

In case you haven’t heard, the U.S. Federal Reserve is meeting this week to decide whether to raise interest rates off of the zero bound for the first time since the financial crisis several years ago. Whether the Fed is or isn’t going to raise interest rates by one quarter of one percentage point on Wednesday has become one of the most overly tortured topics for discussion in recent memory. But while the market impact should be relatively muted – if investors aren’t prepared for the fact that the Fed may raise interest rates by now, they never will be – the stakes for the Fed itself are actually fairly high. The Fed desperately wants to raise interest rates, not because the economy is so strong but so that they can have a policy buffer in preparation for the next recession. But after too many years of waiting and coddling the markets, they are now very late in seeking to make such a move. And a misstep on Thursday could effectively close the window on their ability to raise rates going forward.

Please click on the link to read more of my article on Seeking Alpha.

Anticipation Is Worse Than Reality

We have seen this story before in the post crisis period. Bond yields start rising amid the swelling expectation that any of the following events are soon to take place: a long awaited sustained economic recovery, a sustained rise in inflationary pricing pressures, and/or a sustained rise in central bank interest rates. During each past episode, interest rate segments of capital markets struggle with the anticipation. But once the eventual reality finally sets in, these segments suddenly find themselves rallying and more than making up for any lost ground in the process. Today, investors once again find themselves experiencing the latest act in this repeated performance. And it is likely that events will play out similarly this time around too.

Please click on the link to read more of my article on Seeking Alpha.

U.S. Stocks: Oh Behave!

The U.S. stock market continues to behave remarkably well. Such persistent resilience among U.S. stocks is notable for a bull market that recently entered its seventh year of largely uninterrupted gains since the quelling of the financial crisis in early 2009. And as long as the uptrend remains intact, investors are best served to respect it until warning signals emerge to confirm that definitive change in trend may actually be taking place. With this downside risk in mind, it should be noted that headwinds continue to accumulate for this market with each passing week, so investors are equally well served to avoid becoming complacent as we continue through 2015.

Please click on the link to read more of my article on Seeking Alpha.

The Fed Trade That’s Money In The Bank

Global markets breathed a collective sigh of relief this week. On Wednesday, many investors were expecting that the U.S. Federal Reserve would emerge from their latest Open Market Committee meeting with hawkish suggestions that interest rates would be on the rise perhaps as early as June. But once the statement was released and Chair Yellen took to the podium with downward revised economic growth forecasts, investors took these more dovish tones as a signal that Fed rate hikes would be coming much later than originally expected. Market euphoria ensued from 2PM on and continued through the remainder of the week across virtually all asset classes including stocks, bonds and commodities. But not every corner of capital markets were pleased at the prospects for Fed rate restraint. And this sliver of differentiation may provide a particularly useful trade for investors once the inevitable Fed rate hikes finally get underway.

Please click on the link to read more of my article on Seeking Alpha.


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