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The major indexes faced a trying week of trading that was shaped by numerous news events. Tuesday, it was the FOMC meeting and an announcement by the Fed on interest rates. Even though the Fed held steady on rates (the first pause in 17 consecutive raises), the lack of clarity with regard to the future direction of rates resulted in the market selling off. Then, just when it appeared safe to go back in the water, news of a terrorist plot to blow up Trans-Atlantic planes hit the markets. Nonetheless, combined with the fact that the market had been down for 4 straight days and too many players had been leaning the wrong way, it displayed good resiliency and was able to actually rally and close higher in the face of what was really startling and unexpected news.
Short of major news on the terrorist front, the equities markets will probably re-focus on economic news in the near-term. With interest rates likely moving higher again later in the year, not to mention what appears to be a real estate slowdown occurring, I suspect that the markets may begin to start pricing in a contraction in the economy and consumer spending. As I’ve mentioned in previous weeks, higher interest rates will likely begin to put pressure on those folks who have adjustable rate mortgages. Additionally, higher gas and heating prices may start to impact the consumer as we move into the colder months. Falling home prices could also make the consumer feel "house poor" instead of "house rich" and further slow economic expansion and spending. As such, I feel it's becoming more and more important to remain alert when trading.
Looking ahead, next week will bring a batch of fresh economic news, including the July PPI and CPI reports. While interest rates are on hold for the moment, the Fed did leave the door open to further adjustments down the road based on "incoming information". Lest we forget, this bull market is starting to age.
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.
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