Insights & Advice

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Fedspeak occupies a dull market

It is late summer and a time when the rumor mills work overtime. Financial news departments, confronted with a paucity of breaking news, are desperate to publish “informed opinions” and comments from any public or private sector big name they can find. This week a squad of Fed officials was happy to accommodate.Fed speak

No never mind that after a week of speeches on “will they, or won’t they” hike rates in September (or December, or anytime in between), investors are no closer to the truth than they were last week. As long as raising-interest rate decisions continue to be data-dependent, the markets remain in nowhere land.

I am not going to add my two cents to the debate because exactly when the Fed raises rates is immaterial to me. The financial markets may have an intitial knee-jerk reaction when they do, but for longer term investors, I believe that would simply be a buying opportunity. If traders choose to buy or sell stocks based on the conflicting opinions of every Fed official that gives a speech, well, what else can they do on a boring week in late August?

We are less than one percent from all-time highs in most of the averages. A week or two of choppy action should be expected. Some traders are concerned that as September approaches, we may see an even deeper pullback. That would not surprise me, but it would also not be a time to panic.

Let’s say we do have a decline. One that could, from top to bottom, push the averages down by as much as 10%; but so what. In my opinion markets would quickly recoup those losses and climb even higher. Do you want to miss that?

Why am I so confident? Well, the way the election is shaping up, the odds overwhelmingly favor Hillary Clinton to win the White House. Wall Street wants and expects that.   She represents “business as usual” for the markets with no new policies that will rock the boat. Sorry if you were hoping for change, but Hillary represents a continuation of existing policies with maybe one exception.

Many economists and pundits are now coming around to my view that whoever gets elected will launch a large economic spending program. Infrastructure seems the logical object of this anticipated government largesse. Fiscal spending should propel the economy further and may even restore the U.S. to its historical growth rates for at least a year or two. That would make the stock market roar.

As for the Fed and interest rates, the smart money is betting that if there is an interest rate hike, it won’t come until December at the earliest and even then it is a big “if.”  If history is any guide, the Fed will remain on the sidelines until after the election. In the past, when the central bank did raise rates three months prior to the election, the incumbent party always lost the presidency. I imagine that fact is not lost on a Fed chairwoman who was appointed by a Democrat.

Given that this is the near-term future scenario that the market is discounting, any technical sell-off would be just that. Technical in nature and not something that is out of the ordinary. My advice: don’t try to time the market. Instead, simply tune out the noise and go to the beach.

Posted in A Few Dollars More, At the Market