So the Fed is done. We sort of feel the urge to sing the Wizard of Oz song, the “Wicked Witch is Dead”, using slightly modified words, such as…the wicked old Fed is Done. Tuesday’s news met with some wild action in the market for a little while with the market jumping on the initial news and then falling dramatically and then rallying and so forth until the close was down about a 0.5% from Monday’s close.
We could spend some more time on the Fed news but that Pause is Finally behind us and we have discussed it enough. The stock market now needs something new to “worry” about. That something comes in the form of the Fed’s next move, please. Anyway, the Fed is telling us that maybe there will be another rate hike sometime if maybe, possibly, the economy slows enough.
Pardon me, but isn’t it the job of the Fed to be concerned about inflation? In reaction to the news, Goldman Sachs Economic Research, as quoted in the online WSJ, said that “the main surprise was the committee’s lack of any reference to labor costs, which now show a more consistent pattern of acceleration across major indicators…we now think that the 5.25% funds rate target will represent the final move of this tightening cycle.” We couldn’t agree more.
The stock market certainly shrugged off the Fed news in after hours trading as CSCO, one of the favorite NASDAQ stocks, announced earnings that were basically in line with expectations while revenues were up substantially. John Chambers, CSCO’s CEO, is generally a pretty upbeat guy especially on earning’s calls. Tuesday evening he was predictably optimistic about revenue growth for fiscal 2007. This was all the after hours market needed to pop CSCO’s shares almost 10% and at the same time erase all of the NASDAQ 100 losses for the day. We will see how the stock trades in the early going on Wednesday.
The stock market may be up on the back of CSCO’s news this evening but we do not see a huge up move sticking on Wednesday. Still, we know that the traders’ memories are very short indeed and anything can happen. We expect continued selling with some violent upside moves to keep everyone guessing over the next six to eight weeks. In our opinion the stock market needs to come down a bunch in that time. This opinion is held because of the total lack of concern on the part of the media and the players.
One of our (former) readers said in order for us to see a drop of that size we would need an event. I’m not sure what kind of event can drop the stock market 10%-15% in the space of a month and a half but I don’t want to know. We think the drop will come with almost no news—news items confirming the drop will be viewed by us as a possible time to switch course, the contrarians we are.
Dow Industrials: 11,173.59 -45.79
QQQQ: 36.48
RYVNX: 24.28
RYAIX: 25.47
RYCWX: 42.94
TLT: 86.18
BEGBX: 13.70
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