When the Fed Spoke Yesterday, Everyone Rejoiced. What About Today?
The Fed spoke yesterday at 2 PM, as planned. They took out the word "patient" from their usual comments, indicating that they're more open to raising short-term rates. The rest of their language, however, hedged that and the markets interpreted the ultimate message as continued "dovishness," which basically means rates, if they're raised at all, will be raised slowly and carefully.
All the markets rejoiced: Stocks, bonds, oil, gold, all rose dramatically. The only loser was the US dollar.
But reason tells us that such reactions may or many not tell us much. Looking back, we find the stock market doesn't always react "rationally" in similar circumstances, and may not therefore be headed back up to continue its historic bull run. It may continue to correct as it tried to do these last couple of weeks.
These Fed pronouncements seem to act more like a drug: a good dose of the Fed's magic elixir and everyone feels good for a bit, until the drug wears off. Today the drug will begin to wear off and we'll see what's really on the minds of all those traders and investors as they come back down to earth. Oil, for example, has already begun to give back its gains. Will gold and bonds follow?
As for stocks, nothing in yesterday's action seems to have changed much when it comes to the primary bullish trend or the recent correction. Chances are things will settle down and stock will work through the current correction until a resumption of the bull trend continues - at least for a bit.
Then again, who really knows. That's why we continue to be sure we're relatively balanced in our allocations. We simply don't know with any reasonable precision what's going which way.
So there it is, a fully hedged commentary about yesterdays drama. We had fun with it; we even made a few bucks on a trade. But besides that, we continue with our strategic allocations, keeping an open mind, as we strive to do as a matter of daily discipline.
All the markets rejoiced: Stocks, bonds, oil, gold, all rose dramatically. The only loser was the US dollar.
But reason tells us that such reactions may or many not tell us much. Looking back, we find the stock market doesn't always react "rationally" in similar circumstances, and may not therefore be headed back up to continue its historic bull run. It may continue to correct as it tried to do these last couple of weeks.
These Fed pronouncements seem to act more like a drug: a good dose of the Fed's magic elixir and everyone feels good for a bit, until the drug wears off. Today the drug will begin to wear off and we'll see what's really on the minds of all those traders and investors as they come back down to earth. Oil, for example, has already begun to give back its gains. Will gold and bonds follow?
As for stocks, nothing in yesterday's action seems to have changed much when it comes to the primary bullish trend or the recent correction. Chances are things will settle down and stock will work through the current correction until a resumption of the bull trend continues - at least for a bit.
Then again, who really knows. That's why we continue to be sure we're relatively balanced in our allocations. We simply don't know with any reasonable precision what's going which way.
So there it is, a fully hedged commentary about yesterdays drama. We had fun with it; we even made a few bucks on a trade. But besides that, we continue with our strategic allocations, keeping an open mind, as we strive to do as a matter of daily discipline.
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