Fed Raises Rates Despite Weakening GDP

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[Chart courtesy of MarketWatch.com]
  1. Moving the Markets

You’d think that, as we’ve seen in the past, that a rate hike would cause the dollar to rally, but you would have been wrong. Instead, the greenback got absolutely hammered (see chart below) and lost -1.22% as the Fed stepped in and hiked interest rates by an expected 0.25%.

That hike came in the face of a weakening economy, a topic I have been pounding on for quite a while, which was confirmed by the Atlanta Fed GDPNOW forecast of 0.9% for the first quarter. If that number holds, it would be the weakest economic backdrop for the economy for a rate hike since 1980, according to Bloomberg.

None of that mattered as stocks took it as positive and off to the races we went with all major indexes, along with emerging markets, closing solidly in the green after the past few days of aimless meandering. The weakening dollar pulled gold out of the doldrums and even gave oil a nice kick upward for a change.

Back to the dollar: It plunged to 6-week lows, which is the biggest daily drop in the Bloomberg dollar index since the end of July. Take a look at the chart:

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Uncertainty Reigns

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[Chart courtesy of MarketWatch.com]
  1. Moving the Markets

Market nervousness and uncertainty prevailed as all eyes were feasted on the Fed ahead of their widely anticipated rate hike due to be announced tomorrow late morning. The longer term effect of such a hike remains subject to much speculation, as the Fed will be raising rates into a weakening economy with a GDP growth rate that is anything but awe inspiring.

Equities dropped with all 3 major indexes pulling back as the chart above shows; even gold couldn’t defend its $1,200 level and closed slightly below it. Bonds rallied as the yield on the 10-year Treasury bond dropped by 2 basis points to 2.60%.

The social media darling Snapchat (SNAP) continued to get hammered, and has not only surrendered its IPO rally, but closed deeply in the red below its IPO price. The canary in the coal mine, AKA the high yield corporate bond ETF (HYG), has been falling off a cliff and has broken its 200 day MA to the downside, the first time since Trump’s Election Day. Not a good sign for equities, since they tend to track high yield.

Take a look at the chart:

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Drifting Nowhere

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[Chart courtesy of MarketWatch.com]
  1. Moving the Markets

I did not except much market movement ahead of the Fed’s interest rate decision on Wednesday, and that’s exactly what happened as the major indexes vacillated in a tight range ending little changed on low volume.

Behind the scenes, some divergence has become apparent as the number of S&P companies above their 50-day M/A have turned lower indicating weakening momentum. The same reversal is noticeable when looking at the number of S&P companies above their 200-day M/A.

The US dollar slipped giving support to gold, and the 10-year Treasury yield spiked to 2.62%, its highest since December 2015. Should this continue and rates move towards the 3% level, there will be some fallout in the equities arena. Interest rates can’t simply race higher forever without consequences. The danger zone, as I have posted before, is between 2.6% and 3%, which is the area many top hedge fund managers are watching. Stay tuned…

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One Man’s Opinion: The Seven Stages To A Bear Market For Bonds

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By Michael Carino

We have just lived through the most spectacular global bull market run for the fixed income markets.  This bull market rallied the bond market to the lowest yields ever!  Over a third of all global fixed income was trading with a negative yield.  The most accommodative central bank policies made heroes out of bond fund managers. Bond investors that stayed fully invested with fingers crossed, hoping for the greater fool theory to eventually take them out of their overvalued position were rewarded handsomely.  These bond managers are now managing hundreds of billions in assets, have attained rock star status in the investment community and are living the life of Riley.  After such a spectacular run that has spanned a decade, most fixed income participants have never witnessed losses in their bond portfolios, never mind a bear market that lasts some time and delivers a good amount of pain.

This recent back-up in yields has left many bond investors confused, nervous and unsure what to expect. Well, rest assured, I’m here to assist. After 25 years managing bond portfolios and trading trillions of dollars in the bond market, I believe I have perfected my timing model that identifies when a bond market selloff has run its course.

This proprietary model stands out for being unique, intuitive and void of the quantitative modeling mistakes and biases.  The model is quite qualitative, psychologically driven and keys off the 7 stages of a bear market for bonds:

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ETFs On The Cutline – Updated Through 03/10/2017

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Below please find the latest High Volume ETFs Cutline report, which shows how far above or below their respective long-term trend lines (39 week SMA) my currently tracked ETFs are positioned.

This report covers the HV ETF Master List from Thursday’s StatSheet and includes 366 High Volume ETFs ETFs, defined as those with an average daily volume of more than $5 million, of which currently 217 (last week 239) are hovering in bullish territory. The yellow line separates those ETFs that are positioned above their trend line (%M/A) from those that have dropped below it.

Take a look:

The HV ETF Master Cutline Report            

In case you are not familiar with some of the terminology used in the reports, please read the Glossary of Terms.

If you missed the original post about the Cutline approach, you can read it here.

ETF Tracker Newsletter For March 10, 2017

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ETF Tracker StatSheet

https://theetfbully.com/?p=18630&preview=true

STRUGGLING FOR DIRECTION

[Chart courtesy of MarketWatch.com]
  1. Moving the Markets

Struggling for direction was the theme only of the past week but also for today as the headline of the US adding 235k jobs in February ramped markets higher right out of the gate. Expectations of 200k were solidly beat and even the whisper expectation of 233k was conquered. The unemployment rate remained at 4.7%.

Despite the great headline number, the markets sold off mid-day as a look under the hood revealed that the growth in average hourly earnings came in at 0.2% MoM against expectations of a 0.3% increase. Still, on a YoY basis expectations were met. The bottom line is that the numbers should be good enough for the Fed to hike next week.

Here’s ZH with more details:

There has been a distinct shift in the composition of job gains in the first full job report under Donald Trump: whereas in the recent past, jobs under Obama were mainly focused in low-paying, minimum-wage categories, such as retail, hospitality, education and, of course, food service and drinking places, in February there was a notable change with some of Trump’s favorite sectors, such as manufacturing and construction posting dramatic gains.

Let’s wait and see if this potential game changer can generate enough momentum in the face of higher interest rates, a weakening retail sector, crashing crude oil, collapsing high yield bond prices and a slipping GDP that points decidedly in a southerly direction.

Other than that, everything is great, despite the rate hike odds for June having now grown to 50%. Go figure…

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