One of the most anticipated dates on the calendar for investors came and went this week. It was Market moving. The September Federal Reserve meeting was viewed all year as the first possible interest rate increase since the Financial crisis in 2008. There was a strong debate throughout the Market as to what the Fed would and should do. The 2-day meeting resulted in the Fed keeping rates at zero. That wasn’t a total surprise. However, the fact that the Fed cited international concerns as the reason to hold tight was.
Stocks sold off around the globe, with the greatest pain felt in Europe. Stocks were set-up for sale regardless of the move on interest rates, as they rallied up into a strong level of resistance earlier in the week. It was a classic “sell-the-news” event. The head scratcher in our minds was citing International turmoil as a reason to hold off, specifically China and Europe. This is a bit of a departure from the Fed’s dual mandate which is maximum employment and stable prices. The Fed’s primary focus is the US economy and inflation. That begs the question, should investors be worried about the US economy because the global economy is facing growing pressures of recession or is it more of a function of capital markets and the strong Dollar? We are in the latter camp. Unfortunately, the Fed news leaves investors more confused, with the important question unanswered; when can we finally get beyond crisis monetary policy and 0% interest.
Our sense is the Fed wanted to cool down the strong US Dollar. It seems to be working. The Dollar sold off against virtually all currencies on the news, and is actually trading at 3-week lows. From our perspective, the strong Dollar had gone a long way to do the Fed’s dirty work already. The strong Dollar has also put added pressure on China and Emerging Markets that hold Dollar denominated debt. That is a big concern for Market stability. The strong Dollar has already curbed US company revenues overseas. Global Markets were hit hard with the news. Europe and Japan desperately want the Dollar to be strong against their respective currencies. A weak currency has been their greatest tool in trying to jumpstart their sluggish economies. It backfired on them Thursday.
Whether the Fed now hikes rates in October, December or 2016 really doesn’t matter in the grand scheme. Rates are going to stay low for a while. We preferred them to get it over with yesterday so we can all move on. As mentioned last week, we believe the correction is incomplete, and remain in defense mode. Trading seems more orderly and less panicked in recent weeks, which is a really good thing. Corrections are normal and healthy, but rarely fun. September is used to this.
We take our responsibility of protecting your life-savings very seriously. We’re all over this. Have a nice weekend. We’ll be back dark and early on Monday.
Mike
