Jack Ablin
Jack Ablin
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The world assumes the Fed will raise the rates by a quarter percentage point, that's a non-event. It's what the statement lays out about the pace of future rate hikes that will be important, because that's what people are thinking about. I think the inflation reports will also be pivotal next week.
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Right now, the transparency we had with (former Chairman Alan) Greenspan is gone. We're trying to get some semblance of which way the Fed is going to go.
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Confidence is slipping, manufacturing is slowing, and even with today's jobs report, the employment trend is still negative. The bet here is that the Federal Reserve will have to stop raising rates in order to keep the economy from sliding further.
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I would infer from the statement that the Fed is somewhat more sanguine on the economic recovery. Perhaps they believe that $55 oil prices are, at least for the time being, something of the past and that jobs are just improving at a moderate pace.
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I don't view the market as risky or dangerous even in spite of more Fed tightening. We have enough value in U.S. and international growth stocks. What's holding stocks back right now is uncertainty about interest rates, not valuation.
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What I worry about is that if the Fed continues to tighten, they could commit the same error they have done every time since 1980 and cause a financial crisis.
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But the key here is really going to be guidance. Everyone is looking for signs of the rolling over of profit growth, although not as much as the Fed or higher energy prices might indicate.
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Economists are expecting a gradual slowdown in economic growth paired with a slowdown in inflation. That will allow the Federal Reserve to wind up its rate-hiking campaign.
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It's increasingly believed among participants that the Fed will skip the next meeting, and possibly one more by the end of the year.
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We're still getting more negatives on the economic front today, and this is a period where we're really looking for economic growth to avoid a Fed rate cut.
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Over the last four years the Fed has played the part of a surrealistic painter, creating a dreamy backdrop with generously low interest rates.
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This lends some comfort to the situation. In spite of slight economic weakness, the Fed sees no need to change its strategy. It's also not going to shut down the economy too quickly.
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With light volume, we're going to bounce around like a ping-pong ball. I wouldn't take any moves this week as a clear indication of anything.
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Earnings are still the engine and the market is not overvalued, but the environment we are in is creating pressure.