Daily Market Update – February 18, 2015 (Close)
Yesterday was a rare quiet day for 2015, which has, so far, been far more broad in its daily trading ranges, but as that volatility had increased it has slowly started to retreat.
That’s usually what happens when the market goes higher and when the trading ranges are smaller from day to day and during the day.
Today, while no one was really expecting it to happen, the volatility could have gotten a push as the FOMC Statement was to be released this afternoon. Lately there’s been a lot of focus on the new wording that the FOMC has been using to semi-quantitatively give an idea of when interest rate increases could be expected.
Today, there turned out to be mixed signals about the need for higher rates but the potential danger of rates going higher, too fast and so the market did nothing in its response.
That was actually a pretty mature way to act.
Given the nearly 30% increase in the interest rate of the 10 Year Treasury Note over the past few weeks, albeit from incredibly low levels, the bond market may be suggesting that the increase will be coming sooner than many now believe, as the futurists of the world are split into two camps on the issue.
There are those that believe that interest rates will be raised by the FOMC sometime in the middle of the year and others are saying that we won’t see any rise until 2016.
Following what may have sounded like a net dovish statement from the FOMC rates actually tumbled, down nearly 4% for the day.
The first clue over who will be right may come this week and re-inforced next week as major national retailers start to report their quarterly earnings. If the general axiom that the bond traders are the smartest guys in the room is correct, then their recent action on the 10 Year Note would suggest that those rates are going higher sooner, rather than later.
Today, they just blinked a little.
For those old enough to remember, increasing interest rates can be pretty frightening, but you have to go back about 30 years for that memory. We’ve never known the kind of situation that Japan and now Europe have undergone where low interest rates have lost their ability to stimulate the economy and higher interest rates appear to be the tonic for the economy.
While there’s definitely a negative aspect to increasing rates, including competition for investor’s money away from stocks, like most everything else, there’s good things in moderation.
In this case, increased interest rates is a sign of things getting better, but based on the kind of recovery that this has been, having come from incredible depths from its nadir 6 years ago, there’s not too much reason to fear the kind of over-heating that was seen in the 1970s. Back then, the only beneficiaries of increasing rates were banks and energy companies, who produced the oil that contributed to much of the rise in prices and subsequently, interest rates.
So even if the FOMC had said anything that would have taken the market by surprise, that reaction probably would have been very short lived. As it was the market started the morning off by continuing yesterday’s cautious trading until getting some word that all was clear.
With a shortened trading week and a few new positions already purchased, there wasn’t too much likelihood of adding any new positions today and the same probably holds for the rest of the week.
At this point I’m simply hoping that the week will end somewhere close to where we are as we begin this morning, giving a better cash position to begin the March 2015 option cycle.
That’s not too much too ask for.