MV Weather Report: Fed Shrouds Markets With Fog
Rain or shine, we review the day's biggest stock stories.
The FOMC was the story of the day, even though they really said nothing new. The Fed stuck to its language that interest rates would remain low for a considerable amount of time. The Fed said that economic activity has picked up following the severe downturn of last year. It also said that it will gradually slow the pace of the purchases of agency mortgage-backed securities and agency debt with a finishing target of first quarter 2010.
The market initially reacted positive to the news as the S&P 500 shot up to a new year-to-date high of 1080. But, typically the first move post-Fed is the wrong move and that was the case today as the last hour of trading was UGLY.
In the final hour, the S&P 500 dropped 20 points before closing right at the low of the day at 1060, down -1.01%.
Many individual stocks that were strong reversed as well: JPMorgan (JPM), Caterpillar (CAT), and Amazon (AMZN) to name a few. Apple (AAPL) and Research in Motion (RIMM), though much higher intraday, still managed to close green.
On today's Buzz and Banter, Professor Kevin Depew noted what an important close this was: "The close is important today. A close below 1061 (basis SPZ futures, 1066 cash index) would tell us the probabilities are that this leg higher has ended."
Depew nailed it today, so does this mean the bull run is over (or should I call it the "bear market rally")?
I don't think it is, there was a lot of hot money in the market that was just looking for an excuse to take profits and the Fed was the excuse.
Jon Markman gave his thoughts on the rally today on the Buzz and Banter.
"I am very bullish and here's why. I encourage Minyans to listen to the tape. I mean really listen and don't argue. Even when people will tell you that sometimes the tape lies, and it does sometimes lie, but one needs to know how to filter the tape's message, and that's where the art comes in.
"But also, I'd like Minyans to think about one more thing, and that's to not fight the Fed. My short way of explaining this is that "money makes everything better." It's not always the case, but much of the time.
"But here's the deal. Never in the history of the world has there ever been such a coordinated global kumbaya in favor of one single goal of any kind. Government leaders, central bankers, Asia, Europe, and the US all have one goal: prevent deflation, make the banks profitable again, and refloat the global economy."
This might be the start of the pullback everyone is looking for, but like Markman said, you can't fight the Fed.
Have a great night!
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