Good News, Bad News
An encouraging economic report was released Monday, which increased concerns
about a sooner rather than later Fed rate hike. From Reuters:
Consumer spending rose 0.5 percent last month after being unchanged in
July, the Commerce Department said. The growth in August was just above
the median forecast in a Reuters poll of economists...Even after adjusting
for inflation, spending was 0.5 percent higher, the biggest gain since
March. Growth in personal income ticked up 0.3 percent, in line with forecasts.
Big Picture Deteriorating
This week's stock market video shows while the bulls are still in control,
their margin of error is getting quite thin as interest rate concerns increase.
1994 Fears Linger
With the Fed signaling "considerable time" may be removed from their policy
statement in the coming months, market participants are concerned about a 1994-like
event taking place in late 2014 or early 2015. From Businessweek:
The last time consumer-price increases were slowing before the Fed started
increasing borrowing costs was in 1994..."The critical example for the
markets is 1994, and that's the thing that we all fear," Gary Pollack,
the New York-based head of fixed-income trading at Deutsche Bank AG's private
wealth management unit.
Investment Implications - The Weight Of The Evidence
Our market model called for a reduction in our equity exposure last week based
on evidence of waning economic and market confidence. As shown in the two weekly
snapshots of the S&P 500 below, the market's indecisiveness is starting
to impact the intermediate-term trend in a negative manner.
Since the look of a weekly chart is much more important at the end of the
week, the bulls do have some time to repair the damage. Therefore, we will
continue to hold a mix of stocks (SPY), leading sectors (XLV), bonds (TLT),
and an offsetting position in cash until the evidence improves.
Two Big Reports Coming
If there was ever an economic report that could flip the bull/bear field,
it would have to be the monthly employment report, which is coming this Friday.
Wednesday brings the latest read on U.S. manufacturing activity.
