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The Bull Is Still Running. So Why Are Investors Tiptoeing?
FYI: Wall Street seems unable to make up its mind about risk-taking.
The market declined sharply on Friday, yet all three major domestic stock indexes are still near their highs. Shares of speculative small companies have been outpacing stable blue-chip stocks lately. And volatile emerging-market equities have shot up more than 16 percent so far this year.
Capital Markets In The Week Ahead Sep. 11, 2016 11:29 AM ET Marc Chandler seekingalpha.com The week ahead will likely be shaped by a combination of what happened last week and what will happen the week after next. The end of last week saw a sell-off in equities and bonds and a recovery in the US dollar. The week after next the FOMC and BOJ meet in apparently live meetings, meaning that policies may be adjusted.
Ahead of the blackout period around the FOMC meeting, three Fed officials will speak on Monday. Atlanta and Minneapolis Fed presidents will be overshadowed by Governor Brainard. Brainard has been consistently a voice of caution, and has tended to emphasize the international context in which the Federal Reserve operates. Her speech, in Chicago, on the outlook for the economy, will be closely followed. No change in her stance or tone, could encourage softer yields, a softer dollar and lend support to equities. On the other hand, any hint that the Fed has been sufficiently cautious, and recognition that the Fed's objective is near would likely see a more dramatic reaction the other way.
Some observers argue that the Fed has become so politicized that it will not hike rates before the election. This is not a strong argument on a number of counts. First, the US Senate has left the Board of Governors understaffed. It has refused to confirm Obama nominee to fill two vacant seats. Second, the structure of the Federal Reserve included staggered terms, ...
Third, and most importantly, a rate hike in the current context is a vote of confidence in the US economy. It is not clear what monetary policy the Obama Administration or Clinton (or Trump for that matter) desire. Increasing the Fed's target range for Fed funds from 25-50 bp to 50-75 bp will likely have little impact on most Americans. Last December's rate hike, similarly had little perceptible impact. It did not stop mortgage rates from easing. It did not lead to higher unemployment. It did not sap consumption. http://seekingalpha.com/article/4005458-capital-markets-week-ahead
The Last Word on Fed Policy Goes to Brainard A series of contrasting speeches have left Fed-watchers looking for a signal Jeanna Smialek bloomberg.com Lael Brainard, a Fed governor, is speaking in Chicago on Monday, making hers the last scheduled appearance before U.S. central bankers go into their traditional pre-meeting quiet period ahead of a Sept. 20-21 confab in Washington In the run-up, here's a review of some of the most important Fed comments since Chair Janet Yellen last spoke. As you can see from this list — which goes chronologically, but leads with this year's voters — there's a significant divergence of views. http://www.bloomberg.com/news/articles/2016-09-11/the-last-word-on-fed-policy-goes-to-brainard
Rate hike back off? Stocks add to rally after "super-dove" speech By: Stephen Alpher, Seeking Alpha News Editor Bob Brusca of FAO Economics says Fed Governor Lael Brainard has given "a super-dove speech."Stephen Stanley of Amherst Pierpont Securities calls Brainard "over the top dovish," who sees "weakness where others see strength." http://seekingalpha.com/news/3208234-rate-hike-back-stocks-add-rally-super-dove-speech Governor Lael Brainard At the Chicago Council on Global Affairs, Chicago, Illinois September 12, 2016 The "New Normal" and What It Means for Monetary Policy Excerpts: In the months ahead, my colleagues and I will continue to assess what policy path will best promote the sustained attainment of our goals. With that in mind, I would like to start by describing the contours of today's economy that will be particularly important in shaping the appropriate path of policy... Key Features of the "New Normal" 1. Inflation Has Been Undershooting, 2. Labor Market Slack Has Been Greater than Anticipated In addition, the unemployment rate is not the only gauge of labor market slack, and other measures have been suggesting there is some room to go.. 3. Foreign Markets Matter, Especially because Financial Transmission is Strong Third, disinflation pressure and weak demand from abroad will likely weigh on the U.S. outlook for some time, and fragility in global markets could again pose risks here at home....Japan remains greatly challenged by weak growth and low inflation. Indeed, it is striking that despite active and creative monetary policies in both the euro area and Japan, inflation remains below target levels. The experiences of these economies highlight the risk of becoming trapped in a low-growth, low-inflation, low-inflation-expectations environment and suggest that policy should be oriented toward minimizing the risk of the U.S. economy slipping into such a situation. 4. The Neutral Rate Is Likely to Remain Very Low for Some Time Fourth, perhaps most salient for monetary policy, it appears increasingly clear that the neutral rate of interest remains considerably and persistently lower than it was before the crisis. In the face of an adverse shock, however, our conventional policy toolkit is more limited, and thus the risk of being unable to adequately respond to unexpected weakness is greater. The experience of the Japanese and euro-area economies suggest that prolonged weakness in demand is very difficult to correct, leading to economic costs that can be considerable.
This asymmetry in risk management in today's new normal counsels prudence in the removal of policy accommodation. I believe this approach has served us well in recent months, helping to support continued gains in employment and progress on inflation. I look forward to assessing the evolution of the data in the months ahead for signs of further progress toward our goals, bearing in mind these considerations. Full Speech presented today in Chicago https://www.federalreserve.gov/newsevents/speech/brainard20160912a.htm
Comments
Sep. 11, 2016 11:29 AM ET Marc Chandler seekingalpha.com
The week ahead will likely be shaped by a combination of what happened last week and what will happen the week after next. The end of last week saw a sell-off in equities and bonds and a recovery in the US dollar. The week after next the FOMC and BOJ meet in apparently live meetings, meaning that policies may be adjusted.
Ahead of the blackout period around the FOMC meeting, three Fed officials will speak on Monday. Atlanta and Minneapolis Fed presidents will be overshadowed by Governor Brainard. Brainard has been consistently a voice of caution, and has tended to emphasize the international context in which the Federal Reserve operates. Her speech, in Chicago, on the outlook for the economy, will be closely followed. No change in her stance or tone, could encourage softer yields, a softer dollar and lend support to equities. On the other hand, any hint that the Fed has been sufficiently cautious, and recognition that the Fed's objective is near would likely see a more dramatic reaction the other way.
Some observers argue that the Fed has become so politicized that it will not hike rates before the election. This is not a strong argument on a number of counts. First, the US Senate has left the Board of Governors understaffed. It has refused to confirm Obama nominee to fill two vacant seats. Second, the structure of the Federal Reserve included staggered terms, ...
Third, and most importantly, a rate hike in the current context is a vote of confidence in the US economy. It is not clear what monetary policy the Obama Administration or Clinton (or Trump for that matter) desire. Increasing the Fed's target range for Fed funds from 25-50 bp to 50-75 bp will likely have little impact on most Americans. Last December's rate hike, similarly had little perceptible impact. It did not stop mortgage rates from easing. It did not lead to higher unemployment. It did not sap consumption.
http://seekingalpha.com/article/4005458-capital-markets-week-ahead
The Last Word on Fed Policy Goes to Brainard
A series of contrasting speeches have left Fed-watchers looking for a signal
Jeanna Smialek bloomberg.com
Lael Brainard, a Fed governor, is speaking in Chicago on Monday, making hers the last scheduled appearance before U.S. central bankers go into their traditional pre-meeting quiet period ahead of a Sept. 20-21 confab in Washington
In the run-up, here's a review of some of the most important Fed comments since Chair Janet Yellen last spoke. As you can see from this list — which goes chronologically, but leads with this year's voters — there's a significant divergence of views.
http://www.bloomberg.com/news/articles/2016-09-11/the-last-word-on-fed-policy-goes-to-brainard
2. I'm convinced they're setting the markets up for a quarter point hike in December.
3. The election has cast an enormous amount of uncertainty into the minds of investors. And that uncertainty may not be totally resolved on Nov. 8.
Keep your belt snugly in place.
FWIW
Rate hike back off? Stocks add to rally after "super-dove" speech
By: Stephen Alpher, Seeking Alpha News Editor
Bob Brusca of FAO Economics says Fed Governor Lael Brainard has given "a super-dove speech."Stephen Stanley of Amherst Pierpont Securities calls Brainard "over the top dovish," who sees "weakness where others see strength."
http://seekingalpha.com/news/3208234-rate-hike-back-stocks-add-rally-super-dove-speech
Governor Lael Brainard
At the Chicago Council on Global Affairs, Chicago, Illinois
September 12, 2016
The "New Normal" and What It Means for Monetary Policy
Excerpts:
In the months ahead, my colleagues and I will continue to assess what policy path will best promote the sustained attainment of our goals. With that in mind, I would like to start by describing the contours of today's economy that will be particularly important in shaping the appropriate path of policy...
Key Features of the "New Normal"
1. Inflation Has Been Undershooting,
2. Labor Market Slack Has Been Greater than Anticipated
In addition, the unemployment rate is not the only gauge of labor market slack, and other measures have been suggesting there is some room to go..
3. Foreign Markets Matter, Especially because Financial Transmission is Strong
Third, disinflation pressure and weak demand from abroad will likely weigh on the U.S. outlook for some time, and fragility in global markets could again pose risks here at home....Japan remains greatly challenged by weak growth and low inflation. Indeed, it is striking that despite active and creative monetary policies in both the euro area and Japan, inflation remains below target levels. The experiences of these economies highlight the risk of becoming trapped in a low-growth, low-inflation, low-inflation-expectations environment and suggest that policy should be oriented toward minimizing the risk of the U.S. economy slipping into such a situation.
4. The Neutral Rate Is Likely to Remain Very Low for Some Time
Fourth, perhaps most salient for monetary policy, it appears increasingly clear that the neutral rate of interest remains considerably and persistently lower than it was before the crisis.
In the face of an adverse shock, however, our conventional policy toolkit is more limited, and thus the risk of being unable to adequately respond to unexpected weakness is greater. The experience of the Japanese and euro-area economies suggest that prolonged weakness in demand is very difficult to correct, leading to economic costs that can be considerable.
This asymmetry in risk management in today's new normal counsels prudence in the removal of policy accommodation. I believe this approach has served us well in recent months, helping to support continued gains in employment and progress on inflation. I look forward to assessing the evolution of the data in the months ahead for signs of further progress toward our goals, bearing in mind these considerations.
Full Speech presented today in Chicago
https://www.federalreserve.gov/newsevents/speech/brainard20160912a.htm