Market Lab Report - Premarket Pulse 9/14/16
Major averages reversed Monday's gains yesterday on higher volume. The NASDAQ Composite sits at its 50-day moving average while both the S&P 500 and Dow Industrials remain firmly below their 50-day lines. Rising long-term interest rates pressured the broader market as uncertainties regarding global central bank policy again took hold.
The ETF TLT that tracks the performance of the US Treasury 20+ year index has corrected sharply over the last few days in anticipation of a possible rate hike sooner than later. As TLT falls, yields rise.
But the Fed has no room to hike rates by any meaningful amount, thus any rate hike may very well be a one-time hike. The global economy remains stagnant suggesting that the central banks are out of bullets. Nevertheless, the mistaken notion is to continue to print money. This money has no choice but to go into equities, of which the US stock market is the tallest standing midget, and hard assets. The US stock market may therefore continue its QE-manipulated bull market for longer than expected. This "bull" should continue to be challenged by sharp corrections as it meets head on with continued reports of global economic woes and further threats of slowing QE.
Indeed, the markets have become highly sensitive to a central bank's QE maneuvers. For example, the European Central Bank recently disappointed markets by not confirming the extension of its bond buying QE program beyond March 2017, even though the ECB repeated, in its statement, that it expects rates to remain at present or lower levels for an "extended period" as well as repeating that its program of monthly asset purchases of 80 billion euros will continue until at least the end of March 2017.
Japan, meanwhile, recently said it would not rule out taking interest rates deeper into negative territory in hopes of achieving the 2.0% inflation target.
A growing loss of confidence in global central banks will add to any selling pressure.
CME Fed Futures put the odds of a hike in December when the US Federal Reserve meets at roughly 50%.
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