Daily Market Update – October 27, 2014 (Close)
There is very little scheduled news this week and not too much anticipated on the unscheduled side, unless the New York City Ebola patient suffers a downturn.
Otherwise the world is pretty quiet as this week starts. Even the Brazilian market’s meltdown in the morning’s future’s trading, dropping about 8% on news of the incumbent winning the presidential election seemingly barely got a notice by the US markets. When trading closed for the day you never would have known that the US cared about anything in Brazil, at all.
The only real story this week and it may be more important than usual, will be Wednesday’s release of the FOMC Statement.
Any alteration in the wording that we’ve become accustomed to that might support Federal Reserve Governor James Bullard’s belief that the Federal Reserve should delay exiting Quantitative Easing will have some kind of an impact
Although it could be coincidental it appears that the market’s sudden bounce higher from its 9% decline was triggered by Bullard’s comments. What’s never known is when those who are typically non-dissenting FOMC voting Governors say something whether it’s their opinion or reflective of what be the majority opinion.
But even if that’s not known the second unknown is how the market would react to news that the FOMC didn’t believe that the economy could withstand a complete exit by the Federal Reserve.
When Bullard made his comments the market embraced the idea and ran with it, but if it becomes reality it could easily be otherwise, as just another example of how the market reacts to rumors and to news. Once that specific reality hits the likely question would become “Seriously, the economy is that bad?” and that kind of forward looking doubt leads to selling.
After two weeks of not having made a single new purchase I was beyond anxious to do something but don’t have the confidence that there will be much reason to stick any necks out until Wednesday or Thursday.
Although there was finally an opportunity to execute a new purchase today, I expect and hope, that the Intel shares, which go ex-dividend next week, get assigned early. At this point I would trade off the dividend for the two weeks worth of premium and the ability to redeploy that cash.
Lately, however, even what may have looked like relatively sure things have been anything but.
For now I’d be content to see a repeat of the past week, even though there were very few trades to show for it and even while watching volatility drop and taking premiums along with it. At least there was some recovery of share prices. Of course, that’s only true if they were something other than energy and metals shares.
Sooner or later those have to jump out of their correction mode.
Today’s drop in energy was the result of a call by a Goldman Sachs analyst for $70 oil. That came from the same analyst who last called for $150 oil.
But other than the call about 9 months ago for falling precious metal prices, Goldman Sachs, as great as it is at everything else, has had a really rough past 10 years when it comes to predicting commodity price trends.
I think today’s call for $70 oil may be a sign of having reached or being very near the bottom.
For the time leading up to Wednesday’s FOMC Statement release there will be plenty of more earnings reports being released, including the always exciting Facebook and Twitter, but the companies that have the greatest likelihood of being able to move whole markets have already reported.
This morning the US futures market was just very mildly lower which lead you to believe that the drop in Brazil is considered to likely be a blip and to have limited consequence. Of course, the slightest suggestion by the incumbent that recognizes the need for some economic reforms would do wonders for their market, but there is precedent for victors believing that they have a mandate even when barely crossing the 50% support vote.
But we still probably don’t care very much, regardless of what direction Brazil takes, especially as their oil reserves and output mean less and less for the United States.
So today was likely to be another day to sit back and see where events would take us in what should have been a quiet day and did turn out to be a quiet day.
Whether tomorrow will do as expected, and also remain quiet is another question as those have been very rare in the past month as triple digit move days have become the new norm for now. Two such days in a row may be asking for too much.