Home About Archives RSS Feed

@theMarket: Shot Across the Bow?

By Bill Schmick
iBerkshires Columnist

Interest rates have been on a downward path for almost 30 years. In May of last year, thanks to the Fed's taper talk, that direction has reversed. This week it was revealed that some Fed officials are actually discussing when to hike interest rates.

The discussion took place late last month during the Federal Open Market Committee meeting presided over by the new Fed chairwoman, Janet Yellen. Like her predecessor, Ben Bernanke, Yellen appears in no hurry to raise short term interest rates and has told the markets as much. Most investors, guided by past Federal Reserve comments, are not expecting a hike in interest rates until the middle of next year at the earliest.

So why discuss it at all? Actually, for me, any discussion of raising rates is a fairly strong indicator that both employment and the economy are continuing to gain momentum and are expected to do so in the future. That needs to happen in order to justify the present levels of the stock market and any further advances equities may make.

I am sure that the same dissenting Fed members who, for years, have opposed further stimulus by the FOMC majority are behind this talk of hiking rates. These are the "inflation hawks" and if they had their way, the Fed's gradual tapering of stimulus would be accelerated from its present $10 billion a month decline to something more meaningful.

But moving the discussion from fewer stimuli to raising rates is a quantum leap in monetary policy.  I do not believe anyone at the Fed is seriously entertaining a hike in short term rates before the middle of next year.

In the meantime, over in the stock market a bit of profit-taking has kept the markets from achieving their objective. Recent highs are within sight. The S&P 500 Index actually came within 2.5 points of that target on Wednesday (and five points on Friday) before falling back. I would expect more of this kind of action before we reach and then break those highs.

Nevertheless, a new high will happen in the weeks ahead, but it does not mean that sunny skies lie ahead. There are storm clouds forming. Record highs will be met by more profit-taking, which will create more declines similar to the one we experienced in January. This year, as I have written in the past, will not be like 2013. There will be more volatility and more declines, although by the end of the year the markets will be higher than they are now.

So far, I see little to fret about. Investor sentiment has returned to a more reasonable level. The economic data, despite the weather effects, continues to show improvement.  The technical charts indicate we are still in a bull market so what is the worst that could happen here? At the worst, we may see another sell off and establish a new trading range once we hit a new high. We could meander up and down for a few months. That would not be unusual since stock markets go sideways over 60 percent of the time. If that is what the future holds, I’ll take it and be satisfied to simply buy and hold.  

In the meantime, over in the stock market a bit of profit-taking has kept the markets from achieving their objective. Recent highs are within sight. The S&P 500 Index actually came within 2.5 points of that target on Wednesday (and five points on Friday) before falling back. I would expect more of this kind of action before we reach and then break those highs.

Nevertheless, a new high will happen in the weeks ahead, but it does not mean that sunny skies lie ahead. There are storm clouds forming. Record highs will be met by more profit-taking, which will create more declines similar to the one we experienced in January. This year, as I have written in the past, will not be like 2013. There will be more volatility and more declines, although by the end of the year the markets will be higher than they are now.

So far, I see little to fret about. Investor sentiment has returned to a more reasonable level. The economic data, despite the weather effects, continues to show improvement.  The technical charts indicate we are still in a bull market so what is the worst that could happen here? At the worst, we may see another sell off and establish a new trading range once we hit a new high. We could meander up and down for a few months. That would not be unusual since stock markets go sideways over 60 percent of the time. If that is what the future holds, I'll take it and be satisfied to simply buy and hold.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

0 Comments
     
News Headlines
Regional Planners Still Waiting On DLTA Funds To Be Released
Clarksburg Welcomes Reserve Officers, Hears From Ed Task Force
North Adams Indoor Sports Facility Marks Third Anniversary
Attorney General Upholds Williamstown's Waubeeka ByLaw
Berkshire County Arc Holds Annual Meeting
Live Feed: Pittsfield Lights the Christmas Tree
Williamstown's Chopsticks Restaurant Reopens
Hoosac Valley Names Adams Scholarship Recipients
Williams Professor Wins Musicological Society Award
SVHC Honors Employees with 2016 Putnam Awards

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



Categories:
@theMarket (213)
Independent Investor (294)
Archives:
October 2016 (1)
September 2016 (9)
August 2016 (5)
July 2016 (7)
June 2016 (7)
May 2016 (5)
April 2016 (7)
March 2016 (8)
February 2016 (5)
January 2016 (5)
December 2015 (5)
Tags:
Jobs Crisis Markets Debt Congress Deficit Economy Europe Wall Street Federal Reserve Pullback Metals Retirement Greece Recession Energy Housing Stock Market Taxes Bailout Fiscal Cliff Euro Currency Japan Europe Election Commodities Oil Stocks Banks Rally Selloff Debt Ceiling Stimulus Interest Rates
Popular Entries:
The Independent Investor: Don't Fight the Fed
The Independent Investor: Understanding the Foreclosure Scandal
@theMarket: QE II Supports the Markets
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
The Independent Investor: Will the Municipal Bond Massacre Continue?
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: How Will Wall Street II Play on Main Street?
Recent Entries:
@theMarket: Day Traders Rule the Markets
The Independent Investor: Dementia & Your portfolio
@theMarket: The Same Old Song
The Independent Investor: The Impact of One Bad Apple
@theMarket: Much Ado About Nothing
The Independent Investor: Woman Need to Invest More
@theMarket: Markets Get Back to Business
The Independent Investor: The VA — If It Isn't Broke, Don't Fix It
@theMarket: A Tale of Two Interest Rates
The Independent Investor: The VA Political Football