The much-anticipated speech by Fed Chair Janet Yellen in Jackson Hole, Wyoming, last Friday was initially met with a round of bullish applause as investors put a Goldilocks spin on the narrative of her message: not too hot and not too cold, but right down the middle.
It is as if the markets accepted the notion of a wait-and-see posture with a likely rate hike in December in the cards. The summer party was on, the barbecue was lit and stocks spiked once the text of her speech crossed the wires.
Within the body of Yellen’s speech, there was a three-paragraph carve-out that touched on the current economic situation and outlook. In that section, Ms. Yellen acknowledged that she believes the case for a rate hike has strengthened in recent months, but also reiterated that monetary policy is not on a preset course.
The bulls promptly latched onto her remarks about the case for a rate hike being strengthened. The behavior of the capital markets doesn’t exactly connote a strong belief that the Fed is going to raise rates soon or, if it did, that subsequent rate hikes will come in rapid-fire fashion. This comes off as more of a “we’ll just have to wait and see what the future data holds” message, and traders ran with it.
Then, to everyone’s chagrin, the major indices rolled over in noticeable fashion. The situation presumably stemmed from a remark made by Fed Vice Chairman Stanley Fischer in a CNBC interview with Steve Liesman. Specifically, Liesman asked Mr. Fischer if markets should be on the edge of their seats looking for a rate hike in September and more than one rate hike before the end of the year. As part of a rambling response, Mr. Fischer said that the contents of the Fed Chair’s speech were consistent with answering yes to both questions… BUT… he added that the Fed still needs to see what the incoming data will look like.
His remark helped breathe some added life into the U.S. Dollar Index, helped undercut the front end of the yield curve and took the wind out of the sails of the stock market and the rate-sensitive utilities sector, which had rallied nicely after the release of Ms. Yellen’s speech. In brief, what went up (mostly) after Ms. Yellen’s speech first hit the wires fell down (mostly) after Mr. Fischer’s surprisingly candid admission on the potential policy path — at least as he sees it. Nice going, Stanley…
So the seesaw rhetoric by the Fed continues. Due to the constant and continuing level of uncertainty in their fiscal policy messages, investors can expect the market to remain in a “washing machine” kind of agitation-driven trading range. For the S&P to extend above 2,200 over the near term, we will have to see some further-improving economic data points make headlines so that the focus can shift away from the Fed and zero in on third- and fourth-quarter growth prospects.
I have just returned from the San Francisco MoneyShow, and the general tone of investor sentiment is pretty tempered and not very ebullient, considering the market indices were recording new highs of late. The idea of a plethora of companies issuing record amounts of debt to buy back stock that shores earnings due to tepid revenue growth does not sit well with investors, nor should it. When the broad market is barely up 7% almost two-thirds of the way through the year, stock selection becomes increasingly vital.
What did get the attention of those attending my MoneyShow workshops was the steady monthly returns from my covered-call advisory service, Quick Income Trader. The idea of selling call options for immediate cash and being long in a handful of the hottest tech stocks, where there is real momentum, was extremely well received by the audience. Investors and traders alike saw genuine potential for their investible capital here.
An active covered-call strategy that truly puts one’s money to work in a manner that outperforms almost every other investment strategy available in a sideways market and only takes 10 minutes a week to manage struck a solid chord with many attendees, who are now onboard as subscribers. I highly recommend that everyone who doesn’t have a covered-call program in place take a tour of how we are getting it done week after week in Quick Income Trader by clicking here. It just might be the best move you’ve made all summer.
In case you missed it, I encourage you to read my e-letter column from last week about the FOMC’s divided mindset on hiking rates. I also invite you to comment in the space provided below.