Daily Market Update – September 22, 2015 (8:30 AM)
This morning’s sharp decline in the futures is probably an invalidation of yesterday’s decent gain coming after a sharp reversal in fortunes last week.
Yesterday seemed like a day that traders were getting back to their previous behavior that welcomed the delay of any interest rate increase because it extended their handout, which was good for equity trading. They were more than happy to continue receiving that handout rather than seeing the economy show the kind of tangible and sustained improvement that would slow down the flow of those handouts.
That initial reversal of fortune was directly tied to the realization that no one of importance over at the FOMC could sway enough other voting members to vote to finally increase interest rates. That inability was a reflection of the belief that not enough of those people believed that the economy was showing enough building strength to warrant even the tiniest of taps on the brakes
More importantly, as the FOMC has indicated that it wants to finally push through a rate increase and that it has indicated that it would do so ahead of the curve, that seems to send a message that the kind of improvement in the economy to warrant a rate increase isn’t necessarily right around the corner.
Too bad that had to happen just at the same time that the market came to the realization that a rate increase wouldn’t mark the end of the world and instead had set its hopes up for that rate increase after years of pinning everything on the continuation of the Zero Interest Rate Poiicy.
Funny how those sort of things seem to happen.
For people who are supposed to understand the economy and investor psychology they certainly don’t do a very good job of it.
It continues to amaze me that there would ever be such sharp moves, especially on an alternating basis, as even the most clueless person would know that the basic health of the market and the economy could never change on a dime and then do so again in a back and forth manner. But it also still amazes me that there can be such large moves seen in so many individual stocks, given how many analysts follow so many of those companies and have as much of an informed position as almost anyone else in the world.
Yet, they get it wrong all the time.
So what does this morning’s marked weakness mean?
I’m looking at it, for the moment, as nothing more than a potential buying opportunity, as we again approach a correction on the S&P 500 if the decline holds up.
What may be important this week, maybe more so than usual, will be Friday’s GDP release.
With some discussion that a rate hike may still be on the table in October, perhaps even before the next FOMC meeting, another strong GDP statistic could send an “all’s clear” to investors who now want to see a rate hike and would welcome that strong GDP number.
History shows that September is generally a very weak month and October not much better.
As we approach the end of September it would be nice to see an October that if not moving the market higher, at least continues this volatile kind of back and forth. The trick will be to attempt to capitalize on any strong move higher by finding any opportunity to sell some calls and also finding some of the braveness necessary to buy something on the way down.