The market is looking for a rate cut for the most part. There's a few banking/mortgage related problems out there and it's difficult to tell just how big they are. The housing market is weaker than the market thingks IMO from the stats and charts I'm looking at.
The dollar has been persistantly week which may tie the Fed's hands. Inflation is still moderate and many commodity groups are still very strong (industrial metals, livestock, agriculture).
Basically, I think certain segments of our economy really need a rate cut but there's still plenty of pipeline inflation and a weak dollar. This isn't good for the markets. It's forcing the Fed to walk a tightrope. They 'are thinking' of lowering while other central banks are in tightening mode. The overall liquidity in the world's markets will probably help alleviate some of the pressure on equities due to this environment but who knows...
I just don't see how this macro environment is good for many industry groups in the stock market. We've seen an inverted YC for quite a while and it's got to be catching up with financials by now. My guess is the Fed will blink and give the market a couple of cuts in the coming 6 months thus establishing a normal yield curve again. This should really help the commodities and hurt the dollar some. All JMHO....fun to think about the big story behind the technicals.
Macro Observations
Started by
Cirrus
, Mar 16 2007 10:40 AM
4 replies to this topic
#2
selecto
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Posted 16 March 2007 - 11:11 AM
They better get the YCT shut down before they start smacking the dollar.
#3
traderpaul
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Posted 16 March 2007 - 11:12 AM
How many rate cuts we had and the market went down.....How many rate hikes we had and the market went up.....What does the rate got to do with the market? Nothing.....
"Inflation is taking place now. Prices may not appear to be rising because they are making packaging smaller. "— Rickoshay
#4
paulstan
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Posted 16 March 2007 - 11:26 AM
The markets are vulnerable to new data points that could trigger a reset in expectations . . . and the fundamentals in the economy suggest that the risk of such a "data point" are growing.
#5
Cirrus
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Posted 16 March 2007 - 12:19 PM
How many rate cuts we had and the market went down.....How many rate hikes we had and the market went up.....What does the rate got to do with the market? Nothing.....
Disagree somewhat. IMHO, ST rates (I use 3 month T-Bills) are VERY important for the market. The 3 months bills are also HIGHLY correlated to Fed Funds. I challenge anyone to look back at the last half dozen decades of T-Bill history and see what happens to stocks each time the 3-month rate hits a 7 year high. There's been a nasty bear response each and every time.
Also, I look at the 3 month rate as more the opportunity cost to stocks as opposed to longer rates. If mutual funds, hedge funds, investors, institutions aren't in stocks the ST rate is typically their return. I'm saying that right now the 3 month bill (money market in a sense) returns 4.9%. This means that if you don't think stocks will go up by 5% why invest in them as the risk free rate is 4.9%?
Overall, history doesn't back up your assertion about the relationship of Fed rate moves and the market. I think this time has been different simply because the historically low real rates we saw the Fed produce--in fact they were negative for a time and are still extremely low across the curve in real terms. That's why your assertion has held up so far this time around with Fed policy.
