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Street Struggling to Shake Rate-Hike Nerves

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March 10, 2015

Another case of good news stinking up Wall Street? The stock market has been on edge since last week’s stronger-than-expected February payrolls report ignited speculation the Federal Reserve could start to tighten the monetary policy screws as early as its June meeting (the Fed next meets March 17-18). And, the nervous nellies are betting that once the central bank takes the first step, it may not stop for some time. It’s easy to forget that the Fed will move only because the economy is standing firmly on its own two feet—good for the long-term health of earnings growth, yes? The easier argument right now, however, is that generous Fed interest-rate policy has puffed up this bull market and the market may have to get used to a new normal.

FIGURE 1: ANNIVERSARY PAUSE?

Monday marked the sixth anniversary of Wall Street’s bull market with a narrowly firmer finish shy of recent record highs for the S&P 500 (SPX). Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Fuel on the Fire. Outgoing Dallas Fed President Richard Fisher said in a late Monday speech that robust gains in the job market could begin generating price pressures that could prompt sooner-vs-later action on rates. This all puts intense scrutiny on next week’s Fed meeting statement and any potential wording change. So much attention around ONE word but everyone is increasingly asking: Will the Fed shed its “patient” approach to policy change?

Dollar’s Climb Continues. Interest-rate speculation and a further widening in the gap between U.S. rates and those offered in much of the rest of the developed world sent the U.S. currency to fresh multi-year highs against its major counterparts. The yen resumed its slide against the buck, carving out a fresh seven-year low. And, the euro edges toward parity with the dollar, fetching around $1.0735, down 1% on the day, as the European Central Bank’s bond-buying binge kicks off this week, pushing yields to new all-time lows. European stocks traded lower.

Still Watching Apple. Apple’s (AAPL) stock is lower in early action after a narrowly higher finish Monday. Volatility is likely to persist for the device giant a day after an event to unveil its Apple Watch and a few MacBook upgrades. Debate over the watch has looped in consumer and fashion bloggers to metals experts but what investors really want to know is if this product has what it takes to ease the company’s dependence on iPhones for revenue.

Good trading,
JJ
@TDAJJKinahan

NC
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