Another Day of Speculation Leads to Mixed Results

The economy is advancing faster than analyst expected and that is translating into confusion with investors. It is good news, bad news as investors like the improved outlook, but fear the stimulus cuts looming from the Fed. The pressure is building around the belief the numbers are improving enough for the Fed to start cutting now. I am not convinced that is true, but it comes down to what the populous believes as a whole that matters more than what I believe as a party of one. The movement is attempting to price in the cuts and take advantage of the good news, that is a tough hill to climb.

The beige book states ‘modest to moderate growth’ for the economy. No disappointments and positive outlook in manufacturing and freight volume. Both point to an improving economic picture. Overall a positive view from the Fed and that helped push the markets off their intraday highs and some selling mid-day. This validated what is referenced above with the good news being bad news, and the Fed having greater reasons to cut stimulus.

If the reaction to the positive data this week is fear relative to the Fed cutting stimulus, what would a better than expected jobs report on Friday do? That puts us in a position of not buying into the positive news, but putting short positions on in light of the positive outlook leading to selling. That is a high risk move and one that I would be willing to pass on versus exposing myself to something that I may regret if everything doesn’t go according to plans. Plenty of interest in watching how this will unfold short term, but extremely cautious.

Moves of Interest Today: 

The yield on the 10 year Treasury bond rose 6 basis points to 2.84% and the 30 year bond rose 6 basis points to 3.9%. TBT was the trade relative to the activity as we have discussed the last week and it advanced today on the rise in interest rates. Watch how the interest sensitive assets respond going forward as well.

Facebook was up 4% bouncing off the recent lows as it is rumored to be favored to join the S&P 500 index. Of course the stock got a bump on the news, but we still have to watch and see if it will hold the move or is this just a publicity bump. We have been long the stock for some time and this is a move of interest as we may want to add to our position on the move higher if it follows through.

Crude oil was up again on the day gaining 1.1% as the price rose to $97.27 and near the next resistance level at $98. As I have stated over the last week, the move has been purely speculative and based on what if’s. And if, the if’s, don’t materialize how far does the price fall?

JC Penny (JCP) fell 4% despite the better than expected sales in November rose 10.1%. The stock has been on the move higher and ran into resistance on the comments relative to the uphill climb for the company and concerns about the ability to pull off the turnaround. Worth watching for further developments in the stock… short or long.

Gold climbed 1.6% on the day as buyers were willing to step in and buy the metal or was the bump in price credited to short covering prior to the announcement of the job data on Friday. If there was a big miss in the jobs number the price of gold would go higher as the Fed would not cut stimulus in response. However, with the ADP report showing a positive numbers in the private sector today, it would be assumed the number on Friday would be positive and thus, short covering in gold led to the climb on the day. Wow… what a speculative market place this has turned into relative to commodities.

The bias is still on the upside in the broad indexes. The data has been positive all week relative to the economy. The fear factor is at play relative to the Fed cutting stimulus and that is keeping the markets in check. Watch, plan and execute your trades with discipline. Take what the market gives and protect your downside risk.