Just the talk of a Fed slowdown is enough to cap the market the next few months.
I was on CNBC yesterday, talking markets right after the closing bell. It was a fun segment and I was on with some really good guys. Peter Boockvar of the Lindsey Group, Todd Schoenberger of Landcolt Capital, and Josh Brown of Fusion Analytics were the other guests on the panel.
Peter kicked things off talking about how the recent improvement in China could help the US markets. Todd laid out why the Fed continues to run the ship and is holding up equities this year. He doesn’t think the Fed is going to taper anytime soon, as the economy is still a little too weak.
I was up next and built on what Todd said. To me, besides the Fed backstop, the one constant has been big spikes in fear during pullbacks. We’ve seen record VIX (INDEXCBOE:VIX) call activity recently and this shows nearly everyone is hedged against higher volatility. Compare that to 1987, when selling index puts was all the rage. In other words, no one was looking for a pullback back then. To me, this year looks more like 1995, a very slow grind higher amid very low volatility.
Josh then pointed out how earnings season wasn’t that bad and he doesn’t think we’ve earned the right to get to the next level. We either need to finally get a true cyclical recovery, or the Fed continues to add money. He isn’t looking for a market trading substantially higher until there is real growth. Todd noted that this year is different than other years because of the Fed and what they’re doing, reiterating why the Fed won’t pullback. Peter finished things up by noting the big changes we’re seeing in the bond market, as rates continue to move higher just on rumors of tapering. Just the talk of a Fed slowdown is enough to cap the market the next few months.