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MLR - PMP 8/1/14

Markets plunged yesterday on notably higher volume on worries that the Fed could raise rates sooner than later due to the wage report which showed a higher than expected 0.7% gain, the largest gain since 2008. That said, the wage report showed a 0.6% gain in the first quarter of 2010 and second quarter of 2011, so these sorts of surprises have occurred before, thus the concerns may be exaggerated. Also, Thursday's wage data show employment costs rising just 2% in the past year, less than the inflation rate. Earlier this week, the Fed said it expects the start of rate increases to come a “considerable time” after the end of its bond-buying program, thus continue to take a dovish, conservative stance as they don't wish to derail a very fragile economic recovery.

Indeed, the Fed would need to see more evidence of a truly recovering economy before taking action. Despite the wage report, the Fed said there’s still a lot of slack, with millions of people ready to take a job if one became available. But if the acceleration in labor costs continues in the third and fourth quarters, that could force the Fed to hike rates sooner than planned to subdue early warning signs of inflation.

The Market Direction and UVXY models moved back to cash given the uncertainty with the market's perception on future interest rate direction. Over the short run, rates may head higher, pushing markets lower as rates spiked higher over the last two days.

One will note the numerous corrections of between 2% to 9% since January 2013 when QE went full bore across many central banks. The NASDAQ Composite and S&P 500 were off their highs by around 1% at the time yesterday's MDM and UVXY reports were emailed out, and closed more than 3% off all-time highs on the S&P 500 and about 2.6% off highs on the NASDAQ Composite, so there still could be further room to fall.

Pharmaceutical maker Pacira Pharmaceuticals (PCRX) had a pocket pivot after a strong earnings report. Sales are soaring. PCRX uses a proprietary drug delivery technology. Given today's strongly negative action in the general markets, it is impressive PCRX has managed to hold its gains. That said, should market conditions worsen, it will likely have a negative effect on even the best stocks so position size wisely if you decide to go long anything right now.

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