WWJD December 2016 Edition

 What Would Janet Do????

Investors have an important week ahead as all of their attention is now centered on the FED. On the economic calendar Building Permits, CPI and Retail Sales are scheduled to report. 

Fed & Rate Fears: On Wednesday (12/14), the Fed will release a statement where everybody will be waiting to see if they decide to raise rates. If the Fed does raise rates for the first time this year, we can expect to see significant volatility following the statement release. Some of the results of an interest rate increase include a strengthening in the US Dollar, a spike in Utilities & Financial companies, a weakening of foreign currencies, oil and metals. We would also see mortgage rates go up as Treasury yields will increase. A press conference will follow the announcement with FOMC Chair Janet Yellen taking questions.

With this being the last meeting of the year, for the Fed to stay relevant, it is highly likely that they will raise rates. If they decide not to raise rates, the Fed could start to lose credibility. At the press conference, investors will be listening for hints as to the trajectory of interest rates in 2017. Lately, with all the news that has come out, good or bad, the market has gone higher. This may be another event where whatever the outcome is, if the Fed increases interest rates, the markets will go up. If they keep rates the same, the markets will go up.

Market Crashes: With the Fed meeting being a potential market moving event, it also has the slightest potential for a market crash, but highly unlikely at this juncture. With the last few market crashes, the “buy the event dip” has become shorter and shorter. In August 2015, when China devalued its currency, it took the markets 65 days to recover. When Brexit occurred back in June, the broader markets recovered in 5 days. Fast forward to when Trump was elected President, the market crashed but recovered 16 hours later. Last week, Italy’s referendum caused the markets to crash over night, only to recover 9 hours later. If the Fed were to drastically surprise, how long would it take for the markets to recover, given the progressive movements of late? 

Central Bank Press Conferences: During the week, we have the Bank of England and the Swiss National Bank announcing monetary policy. Following their respective announcements, they will each have a press conference. Traders will be listening for any interest rate changes that could affect markets, especially in England with the pound plunging in value since the Brexit vote. Investors will also be listening to their growth forecasts as a pick-up in growth could send markets higher.

Retail Sales: Also on Wednesday (12/14), Retail Sales are released and investors will get another look at how retailers performed on Black Friday. Based on the readings, we could see certain parts of the retail sector rise or fall.

New Highs Every Day: Since the election, we are seeing stocks hit new all-time highs almost every day. The Dow has now had 14 record closes since the election. Last Thursday (12/8) 112 companies on the S&P 500 hit new 52-week highs. Investors will continue to watch this bullish sentiment and see how much longer this will carry us.

Dow Theory: The Dow Theory is an old market theory that if the Dow Jones Transportation index is bullish, then the Dow Jones Industrials Average should also be bullish. On Wednesday (12/7), The Dow Jones Transportation Index hit a new high for the first time in 2 years. Other algos and programs were than triggered across most sectors sending the broader markets up over 1% for the day. With the transports also hitting new highs the last few days, traders will watch to see if Dow Theory contributes to pushing the broader markets even higher.     

Trump Tweets: In the last week, when President elect Donald Trump tweeted about a specific company or industry, those stocks declined. Investors will be watching his latest tweets as this may show us what his administration may tackle once he gets into office. With some irony, the one stock that will not be affected by all the exposure to his tweets, is Twitter.