Yesterday I talked about the impact of ‘NOISE’ in the markets and today reminded me of when I made an error on the baseball field and when I got in the dugout the coach made sure I heard about it. All you could do was look at him and say yes sir, I understand, yes sir, I understand… in hopes he would shut up and walk away. That flashed into my mind this afternoon when Yellen was speaking at the press conference following the FOMC meeting. Stop YELLEN, was all that came to mind. That was the biggest bunch of economic psycho babble I’ve heard in a long time.
Interest rates were left unchanged, but the directive to hike rates this fall was made very clear. In fact, it was made clear that they would like to hike rate twice before year-end. That puts more pressure on the September meeting for the first hike. There was some selling into the announcement, but following the press conference prices had move back to their highs of the day. Interest rates on the ten-year bond move down to 2.3% or basically flat on the day. Tomorrow is likely to bring more of a reaction after analyst and pundits have time to digest the comments and read the statement. They will add their own twist and provide plenty of noise to the speculation around the Fed and interest rates. For today we walk away patiently awaiting action versus more noise to ponder.
Crude added it’s part to the chatter on the day as the price fell 1% per barrel from the high on the day. This puts crude back below the $60 mark at $59.83. What was the cause of the move lower after climbing near a new high on the day? Supply showed another decline for the seventh straight week, but the stockpiles grew at the hubs in Cushing, Oklahoma. This led analyst to believe that the drop in supply will end as this pushes through the system for delivery. In other words… more speculation and noise for the sector to deal with going forward. Crude remains in the current trading range and we will take it one day at a time as this unfolds.
The biggest interest point on the day came from the banking sector. KRE was down nearly 2% on the regional banks and KBE was down 1.5% as the large banks fell as well. Why? Remember the belief is if the Fed hikes the short term rates the banks are a benefactor… scanning the headlines and noise from the media… not everyone believes the Fed will hike rates before year end. The mixed opinion showed up in the bank stocks after the announcement. My view is this creates an opportunity to buy the banks at lower prices if they continue to test lower.
Russell 2000 Small Cap index declined on the day… yes the regional banks had an impact on the downside as stated above. IWM held near even on the day, but failed to hold the break to a new high. This sector is likely to follow the lead of the regional banks near term and we will watch equally for an opportunity here as well.
No resolutions in Greece today… had to bring back the noise theme! It is becoming a foregone conclusion that Greece will exit the euro zone and deal with the future alone. Just another day at the office. This topic is old and tired… if they default tonight I am not sure anyone will notice. This is the story of the ‘little boy who cried wolf. Enough already, can we please move forward and let everyone find a lane they can drive in. GREK has dropped nearly 20% since the resolution caused and created panic about the outcome. The exit itself will create more noise and it will have to be filtered to determine where the truth lies separate from the speculation.
Tomorrow is another day and it doesn’t look like the noise is going to die down anytime soon. In the morning research we will address any new developments from overnight that we need to address prior to the beginning of the trade day.