Happy Monday everyone!
Market Mondays, brought to you by Legacy Investing & Wealth Management is a blog giving you a quick and easy read focusing on stock market education, empowering the newer investor as well as giving you the most recent stock market analysis. For more information including past blogs please go to www.LegacyInvesting.net; look for the Market Mondays tab under “The Legacy” for all blogs.
I’ve been pretty busy but now that school is back in I’m getting back to a more regular routine. With that said, you can expect a little more regularity (maybe once or twice a month) when it comes to the Market Mondays blog. Don’t all thank me at once lol. Today I am just focusing on what has been going on in the stock market so you can call this an extended
Almost a month ago we were sitting at 2184 on the S&P 500 and we spent the latter part of the summer in a very tight range. We were still up there until Friday when the Dow dropped almost 400 points and S&P 500 54 points to end the week at 2127. A lot of the heavy-weight traders and institutional investors take vacations in August so trading volume was very light through Labor Day.
There was no real news happening to move the markets and even on Friday nothing really stood out to me except the Federal Reserve Bank of Boston President (Eric Rosengren) making a statement that the US Central Bank should raise interest rates sooner rather than later. The stock market would prefer the rates to be lower for longer which is why it has been going higher the longer rates stay where they are. The stock market traded a lot lower all day Friday and ended at the lows of the session based on that news alone. Since we were near all-time highs it makes sense that when the big guys start hitting the sell button, everyone else follows suit, explaining why we can have big drops all of a sudden like this. I’m going to define some of the terms that are used and why the stock market seems so infatuated with the Federal Open Market Committee (FOMC) and the world’s central banks.
Janet Yellen, the FOMC Chairperson has been very lenient with rates and has kept them very low for a long period of time. She defined when and why interest rates would move higher and although the economy is doing OK, we have been slow to meet their targets. Mainly what she is looking at is the unemployment rate, GDP, and inflation. Unemployment and GDP are pretty much where they need to be but wage growth has been slow and inflation has been tepid at best. She kinda looks at the glass half empty when it comes to the US Economy which means she is taking a DOVISH posture. When lackluster economic data comes in or stock markets are not performing well she may talk down the economy and say we need to continue keeping interest rates lower for longer which causes the stock market to rally. World banks have also been keeping interest rates very low (some of them are actually negative interest rates), printing and pumping a lot of money into their economies. This action is usually bullish for stocks causing them to rally over a long period of time.
When Rosengren made the comments about our central bank raising interest rates that was (for now) viewed negatively by the stock market because higher interest rates means less profits for the companies that trade in the stock market. Less profits equals lower stock prices and that’s why the stock market likes lower rates for longer. His comments would be viewed as HAWKISH, meaning he was talking up the economy by saying we need to raise interest rates.
Technically, we have broken through the 50-day moving average and unless we reclaim that soon we could continue heading lower until the September FOMC meeting (Sept. 20-21). This is where they will announce whether they will raise rates now or hint around a December hike. The next area of resistance is at 2100, then the 200-day moving average – around 2060. If they decide not to raise in September we could rally until election time or even into December’s FOMC meeting.
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Disclaimer – Legacy Investing & Wealth Management LLC or any of its advisers are not liable in any way for any losses incurred through trading by readers of this weekly blog. Any information or strategies of trading suggested here involve risk of capital loss and this weekly blog is not considered investment advice. Individuals who invest in securities are solely and completely responsible for any and every outcome that may occur.