Fed Impact
First, a few political observations. Pres. Bush is floating the idea of Social Security Reform. Good idea. But I remain a little skeptical that the powerful vested interests will sit still and allow this to happen. On one side, Wall Street would love to see this become reality. On the other, Democrats will paint this as a "cutting benefits to the elderly". My cynical guess is that nothing will happen with this, Bush will score points with the financial community and the Dems will be given another notch on their belt for scaring old folks.
Secondly, Serhan Cervik of Morgan Stanley comments in an otherwise reasonable analysis that, "A descent to anarchy in the immediate aftermath of Mr. Arafat's passing is unlikely". Some people would say there is not much further descent possible. Read this excellent article here:
http://www.morganstanley.com/GEFdata/digests/20041110-wed.html
The widely anticipated move by the Fed to raise the Funds rate to 2.00% had minimal impact on the markets Wednesday. But as the Nasdaq is approaching this year's highs, expect some resistance and choppy trading between the 1540 and 1560 levels. With volatility measures moving to match recent lows after a few strong weeks, expect increased volatility as the market deals with this resistance area. Fannie Mae is looking vulnerable as it sits below its 50 and 200 day MA. But with inflation probably running in the 2 1/2% range, after taking out the government's "hedonic adjustments", the current Fed Funds rate is still stimulative and there will likely be enough liquidity around for the near term to at least keep the markets stable. A sustained sell-off seems unlikely until after the beginning of the year. But with the first year of the Presidential term being the market's worst year of the four, 2005 may not hold much promise for the bulls.
The bond market seems to be sending a strong signal that higher rates are coming at the long end. Does this suggest that the Fed has a good deal more tightening to do? The 10 year notes recent drop below a 4.0% yield has quickly and decisively been reversed. I am guessing that the yield will eventually reach 5.5%. That is why I sold my bonds last month. 2.0% isn't a comfortable return for parked cash, but it is better than 20% or greater capital losses.
Secondly, Serhan Cervik of Morgan Stanley comments in an otherwise reasonable analysis that, "A descent to anarchy in the immediate aftermath of Mr. Arafat's passing is unlikely". Some people would say there is not much further descent possible. Read this excellent article here:
http://www.morganstanley.com/GEFdata/digests/20041110-wed.html
The widely anticipated move by the Fed to raise the Funds rate to 2.00% had minimal impact on the markets Wednesday. But as the Nasdaq is approaching this year's highs, expect some resistance and choppy trading between the 1540 and 1560 levels. With volatility measures moving to match recent lows after a few strong weeks, expect increased volatility as the market deals with this resistance area. Fannie Mae is looking vulnerable as it sits below its 50 and 200 day MA. But with inflation probably running in the 2 1/2% range, after taking out the government's "hedonic adjustments", the current Fed Funds rate is still stimulative and there will likely be enough liquidity around for the near term to at least keep the markets stable. A sustained sell-off seems unlikely until after the beginning of the year. But with the first year of the Presidential term being the market's worst year of the four, 2005 may not hold much promise for the bulls.
The bond market seems to be sending a strong signal that higher rates are coming at the long end. Does this suggest that the Fed has a good deal more tightening to do? The 10 year notes recent drop below a 4.0% yield has quickly and decisively been reversed. I am guessing that the yield will eventually reach 5.5%. That is why I sold my bonds last month. 2.0% isn't a comfortable return for parked cash, but it is better than 20% or greater capital losses.
posted by Matt Butler at 4:58 PM
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