The major indexes finished down across the board for
the week, which was punctuated by the 4th of July holiday, and was
underscored with North Korea and ongoing concerns over what the Fed might do
with regard to interest rates throughout the rest of this year. Rumors of a
stronger-than-expected jobs figure weighed heavily on stocks mid week, as market
players got worked into a frenzy by a report from services company ADP, despite
the fact that the ADP report has no track record of accuracy. In the end, the
economic data came in mixed, but how the markets reacted this week shows that
many on Wall Street are still very concerned that further interest rate hikes
are coming in the months ahead.
While the
equities markets may get a breather next week, I suspect that attention will
soon turn to the August 8th FOMC meeting. Currently, Fed Funds futures appear
to be indicating several more interest rate hikes over the coming months. If
this does turn out to be the case, it will likely leave short term rates at
5.75% as the markets work towards closing out 2006.
While 5.75%
is still historically a rather low level for interest rates, it nevertheless is
a level at which bond yields start to pull money away from equities. Perhaps
even more important, it may begin to work out some of the speculation in the
real estate market, which could negatively impact housing and slow the economy
down a bit (which I suspect is part of the Fed's intent). The one wild card may
be commodity prices and demand. With oil pushing $80 a barrel and Summer upon
us, it certainly doesn't give Mr. Bernanke much breathing room when it comes to
easing off on interest rates. My guess? More rate hikes this year. And,
between rates continuing to go up and this bull market aging, I would suggest
that traders stay focused and on their toes!
Please feel free to email me
with any questions you might have, and have a great trading week!
Chris Curran
Chris Curran started
his trading career at the age of 22 with a national brokerage firm. He combines
fundamental and technical analysis to get the big picture on the market. Chris
has been trading for 15 years, starting full time in 1997, and has never had a
losing year as a full-time trader.
