The FOMC statement is made at 2:00 P.M. To write the incredibly obvious, all will dissect every word in an attempt to gain insight into the Fed’s thinking, a thinking which in my view is all over the map. As noted several times, the members of the Committee have expressed various opinions about the strength and momentum of the economy and the direction of monetary policy. The market is expecting a dovish statement.
Commenting about yesterday’s market activity, stocks rose on earnings and the highest consumer confidence reading in seven months as gas prices have dropped and the job market has improved. Separate data showed durable goods orders unexpectedly fell in September and a gauge of home prices indicated slower growth.
Regarding earnings, about 80% of the S & P 500 companies that have posted earnings have topped expectations while 61% beat sales projections.
Many times I commented the index that experiences the biggest pre mid-term election decline experiences the greatest rebound when the election outcome becomes less uncertain. It is now generally accepted the Republicans will take the Senate. The question is now by how much.
The Russell 2000 which was pounded from July through early October is now up 8.9% since its October 13 low. The S & P 500 is only up 5% from its lows. The reasons for the strong advance…earnings, benign interest rate outlook, sentiment, and seasonal strength including mid-term election precedence.
Will the advance continue? I will argue it will partially depend upon next week’s outcome. If 2014 is indeed a wave election, the odds which I suggested about 2 weeks ago is around 60%, I would argue yes for the probability of meaningful debt, entitlement and tax reform rises exponentially.
A basic premise of these remarks has been Washington has held back the markets and the economy, utilizing almost every sentiment survey as evidence that Washington is indeed the problem, not the solution to the problem.
The solution is less government, a view that may perhaps be validated next week which logically then suggests higher stock prices.
Incidentally, according to Barclays, since 1926 the markets has surged a median 7% in the 90 days following a midterm and have been positive 86% of the time.
What will happen today? Will the 2:00 statement be a non-event?
Last night the foreign markets were up. London was up 0.58%, Paris up 0.08% and Frankfurt up 0.63%. Japan was up 1.46% and Hang Sang up 1.27%.
The Dow should open little changed albeit there was a huge earnings short fall in a social media company. The 10-year is up 1/32 to yield 2.29%.