Equites were encouraged by FRB Chair Yellen’s speech indicating a change in monetary policy may occur this year, a tantamount “all clear sign” for the economy.
If all needed to be reminded the Fed’s failure to raise rates at the September FOMC meeting, rather than being reassuring, simply reinforced concerns about the health of the global economy.
Typically equites decline when the Fed increases rates but as stated above any Fed action may do more to ease uncertainty and boost confidence.
Commenting further about Friday’s market, the biotechnology sector plunged again Friday, falling over 5% and down 13% for the week. This over owned and favorite sector is now down 23% since it mid-July peak. This drop caused the NASDAQ to close down 1% and the S & P 500 ending flat.
Several times I have commented that the greatest danger of these most own momentum driven stocks is when selling commences who is left to buy. History is littered with examples of sectors plunging 70% to 75% and then trade sideways for the next 5-15 years. Will the bio techs follow the historical precedent or will shares rebound?
This week can be pivotal in determining the immediate strength of the economy and the direction all markets. Data ranging from the ISM non-manufacturing and manufacturing indices is released, as are pending home sales, factory orders and various employment statistics including the all-inclusive BLS report on Friday. How will this data be interpreted?
More over earnings season commences in about 10 days and the last days of the quarter is typically a period of profit warnings. Will there be any bombshell announcements?
Last night the foreign markets were down. London was down 1.45%, Paris down 2.21% and Frankfurt down 1.43%. Japan was down 1.32% and Hang Sang up 0.43%.
The Dow should open moderately lower as it appears biotech shares will continue their declines. The S & P is poised to register it worst fall since 2011. Chinese shares rallied as an advance in their technology shares overshadowed a report showing industrial companies profits dropped the most in four years. The 10-year is up 8/32 to yield 2.14%.