Daily Market Update – June 7, 2016 (Close)
Yesterday, Janet Yellen spoke and the market listened.
They tried listening a little bit more today, but the words may have gotten too faint, especially by the final hour.
What they heard was the Federal Reserve Chairman speak as if she had been a believer in the value of hedges.
Not that she was talking about any particular hedging strategies, she was just hedging any commitment by being all over the place.
Whatever she said was counter-balanced by something else that she said.
In essence, it was a perfect hedge.
She said that the economy was living up to expectations and that last week’s single point of data from the Employment Situation Report shouldn’t be projected forward.
At the same time she threw water on the idea that there was enough economic strength to consider an interest rate increase next week, although she didn’t really come out and say so.
What she did was to leave investors with the idea that the FOMC was still going to keep giving the gift of cheap money.
As a result, investors started buying and they did so through most of today, as well.
Clearly, traders prefer cheap money to a growing economy. As much as they may have given an indication of being ready to accept that increase, they surely would rather it not happen.
What they also didn’t seem to mind was an economic forecast that said that there was a 36% chance of a recession in the next 12 months.
So here we are, getting ready to now trade on a Wednesday morning and the S&P 500 sits barely 1% below its all time high after a small gain today..
I did nothing yesterday, nor today and am not certain that there is reason to do much tomorrow, although there are still some ex-dividend positions that I wouldn’t mind owning or adding to existing positions.
Otherwise, I don’t mind watching my asset values increase, even though it continues to be hard to understand why this is all happening.
More expensive energy prices, precious metals getting more expensive and no sign of the economy strengthening seems like an odd combination to move the market to new highs.
While maybe low interest rates gives some a reason to explore stocks, it seems like a strange thing to do when one is nearing its lows and the other its highs.