Fed Hoping for Goldilocks

The stock market opened the week with a bang, the Dow up 114 points leading the charge. The stock market keeps inching up and, while you may think 114 points isn’t inching up, we do not see that much strength in a move like this. The broader indexes have been struggling to keep up with the Dow.

We are in no shape to understand this move and do not try to. The bond market has been dropping and it dropped on Monday, with the Fed meeting starting on Tuesday. Here is a quote from the WSJ online version:
“Equity investors seem little concerned about the Fed, which stopped raising rates in August after 17 straight quarter-point increases. While policy makers are broadly expected to leave the federal-funds target rate unchanged at 5.25%, some are concerned the Fed may express concerns about inflation and hint at the chance of future rate increases.”

We have said it here many times, the Fed has lost its power with the market. When they decided to pause their interest rate hike campaign, the stock market figured it was open season with no watch dog in sight. “…some are concerned the Fed may express concerns about inflation and hint at the chance of future rate increases.” The market has No Fear of any of this.

We believe the only way the Fed can get its power back is to raise rates again. We don’t see this as feasible this week due to the proximity of the elections. In fact, we don’t think the Fed has the ability raise rates in this environment at all. They are trying the tack of jawboning the market lower by “tough talk” on inflation and the possibility of a rate hike. This is not going to be effective at all and hasn’t been so far.

5.25% will have to do for the foreseeable future until the Fed can figure out what’s going on with the economy. The housing market is going down and the Fed is keenly concerned about that. It knows the pitfalls of pushing down on housing. They are wondering why the stock market is going up when it’s not supposed to be. They are watching the bond market with its recent inclination to go down (pushing up interest rates). Wage pressures are starting to show up and along with them, inflation doesn’t seem to be going down. They are Hoping that the economy will slow just enough so that they don’t have to do anything drastic, like raise rates. Goldilocks is difficult to find between a rock and a hard spot. Meanwhile the stock market is partying.

Dow Industrials: 12,116.91 +114.54
VIX: 11.08 (up with the market?)
QQQQ: 42.43
RYVNX: 18.22
RYAIX: 22.20
RYCWX: 37.08
TLT: 87.20
BEGBX: 13.48