STOCKS-CALM BEFORE A STORM?
With the most notable exception being yesterday’s 100+ point swing in the Dow, stocks have in recent days behaved as they typically do late in the summer. Most days have been marked by fairly directionless trading. Stock prices are almost paralyzed by a combination of light volume, bears too afraid to short against the momentum of a five month rally, and bulls’ blind hopes of a strong economic recovery being tested by high energy prices, a queasy bond market and a continuing loss of jobs.
Most people will be ignoring the last two days of the week which will likely see even lighter volumes. They will not, however, be ignoring the annual Jackson Hole, Wyoming confab, hosted by the Kansas City Fed, which gets underway tomorrow. There, Fed Chairman Greenspan (a veritable hermit of late otherwise) will give the Friday morning key address. Last year, he dealt with criticism of the Fed’s fueling of a stock market bubble in the late 1990’s. Among the things he’ll no doubt hold court on this year (whether he likes it or not) is how the Fed so whipsawed the bond market as to cause a sudden surge higher in long term interest rates over the last couple months.
Nobody necessarily expects any reports from this invitation-only meeting to immediately move the markets. Key to watch in the coming days regardless, though, will be a still-skeptical bond market. Importantly, Treasuries over the last few weeks have managed to stabilize, taking at least some of the pressure off overpriced stocks for now (though higher rates have hit new mortgage and refinance applications hard.) Watch the 10-year note: any move back above the 4.6-4.65% area that was the high in yields following the summer sell-off will hasten the inevitable correction for the stock market.
Better signs of the short-term outlook for stocks will come next week, once most folks’ summer vacations have ended and normal trading volumes resume. I am still firmly convinced that the market is long overdue for a sizable correction, for all the reasons I have previously covered. Whether we get one final spurt higher before that remains to be seen next week.
For now, I have no immediate changes to either current asset allocation recommendations, or to my recommended list of holdings.
With the most notable exception being yesterday’s 100+ point swing in the Dow, stocks have in recent days behaved as they typically do late in the summer. Most days have been marked by fairly directionless trading. Stock prices are almost paralyzed by a combination of light volume, bears too afraid to short against the momentum of a five month rally, and bulls’ blind hopes of a strong economic recovery being tested by high energy prices, a queasy bond market and a continuing loss of jobs.
Most people will be ignoring the last two days of the week which will likely see even lighter volumes. They will not, however, be ignoring the annual Jackson Hole, Wyoming confab, hosted by the Kansas City Fed, which gets underway tomorrow. There, Fed Chairman Greenspan (a veritable hermit of late otherwise) will give the Friday morning key address. Last year, he dealt with criticism of the Fed’s fueling of a stock market bubble in the late 1990’s. Among the things he’ll no doubt hold court on this year (whether he likes it or not) is how the Fed so whipsawed the bond market as to cause a sudden surge higher in long term interest rates over the last couple months.
Nobody necessarily expects any reports from this invitation-only meeting to immediately move the markets. Key to watch in the coming days regardless, though, will be a still-skeptical bond market. Importantly, Treasuries over the last few weeks have managed to stabilize, taking at least some of the pressure off overpriced stocks for now (though higher rates have hit new mortgage and refinance applications hard.) Watch the 10-year note: any move back above the 4.6-4.65% area that was the high in yields following the summer sell-off will hasten the inevitable correction for the stock market.
Better signs of the short-term outlook for stocks will come next week, once most folks’ summer vacations have ended and normal trading volumes resume. I am still firmly convinced that the market is long overdue for a sizable correction, for all the reasons I have previously covered. Whether we get one final spurt higher before that remains to be seen next week.
For now, I have no immediate changes to either current asset allocation recommendations, or to my recommended list of holdings.
