Market Lab Report - Premarket Pulse 11/10/15
Major averages fell yesterday but on lower, below average volume on renewed concerns about an impending rate hike when the Federal Reserve next meets in December. Given the huge move the averages have made in less than 6 weeks, they were well above their respective 50dmas, thus a pullback would be expected. Clues will be seen in the days ahead in how leading stocks behave as to whether the pullback will be short-lived or something more serious.
In terms of interest rates, a proper wind down of QE would be a step in the right direction though central banks abroad have no intention to tighten at this juncture. Meanwhile, the US economy, according to what the Fed follows, is on the mend giving them more room to tighten when they meet in December. If the US economy is truly on the mend, a first hike on this basis could be bullish as history has shown. On the other hand, jobs data is suspect thus the economy could still be weaker than reflected in the report. This could still prompt the Fed to hike but as a one-time hike of 25 basis points, then keep rates at that level for a prolonged period while the economies of the world heal.
That said, QE seems to have failed to stimulate any sort of meaningful growth at home or abroad since it began in late 2008 in the US then later in other countries. Central banks have the mistaken notion that printing money will lower interest rates which will stimulate growth. And while this might normally work, these are not normal times. The issue is that first world governments are seeking higher and higher taxes to plug the gaping holes in their massive trillion dollar deficits. But this only serves to increase asset/currency inflation as well as goods inflation because fewer goods are being produced at higher production costs (which explains why basics such as milk, eggs, and electricity cost as much as they do). Meanwhile, demand inflation, a true measure of real demand in healthy economies, remains dormant.
Thus, central banks remain trapped in this QE vortex as they continue to print. Any soft landing seems further and further off, if it is even possible. As always, keep a close eye on your stocks since market pullbacks in this environment can result in stocks getting clocked.
Wine and spirits distributor Constellation Brands (STZ) had a pocket pivot yesterday off of its 50dma. Earnings and sales are accelerating, pretax margin 21%, group rank 27.
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