Fed’s latest pronouncements on interest rates, weird oil price action likely to blame for Tuesday’s strong selloff.
WASHINGTON, March 24, 2015 – Stocks tried several times to rally Tuesday, after Monday’s big, last-second selloff, possibly caused by one or two big sellers dumping their portfolios wholesale and throwing the proverbial baby out with the proverbial bath water in the process.
Market averages flirted with the green all morning before selling off modestly again. But the game of tag seems to have concluded around mid-afternoon, circa 2-2:30 p.m. EDT. This is often the time when markets decide to get really serious about going up or down for the 4 p.m. close. They decided “down” quite decisively again, as stocks were dumped again and quite violently, right into the close.
We’ve symbolized this latest “over the falls” market mess with the photo above picturing the ill-fated “Caroline.” It was a Canadian ship the Brits sent over Niagara Falls in flames back in 1837, killing a rumored bunch of Americans aboard, even as President Martin van Buren dithered about choosing an appropriate response.
In addition to recalling Tuesday’s negative market action, the fate of the ship in this painting reminds us of President Obama’s similarly confused response to the 2015 mess in the Middle East. But we’re getting off topic here. (Plus, BTW, it turned out that only one Yank was actually killed in this cross-border incident.)
Back on Wall Street, things admittedly could have been worse. At 4 p.m., the Dow closed down about 105 points. The S&P 500 was off nearly 13, and the tech-heavy NASDAQ was only slightly worse at a negative 16 and change.
Trading speculation Tuesday centered on the Fed’s unexpected interest rate dovishness, as outlined after last Wednesday’s meeting was concluded. We explained the Fed’s likely stalling on this issue in our Monday column. They really do want to start normalizing interest rates, but also likely concluded that the euro’s tanking too far, too fast vs. the greenback, a currency issue that, in turn, was almost certainly helping to drive down the price of oil to decline so far and so fast as to risk ruinous pricing levels, particularly for U.S. producers.
The Fed’s announcement has since caused a boomerang effect in those two key indicators. Oil, which late last week looked as if it might touch a new interim low, had been trading dangerously close to $40 per barrel; intermediate to longer term bonds lost some trading value (increasing yields for some); while the all-powerful American dollar—which just a couple of days ago briefly dropped below $1.05 to the badly sagging euro—reversed field, hard, closing at $1.09 Tuesday afternoon.
For those who don’t really follow currency, the recent moves between the dollar-euro pair have been shockingly huge and breathtakingly rapid, having put a world of hurt on American companies that export.
Lacking the kind of certainty they had last week when convinced the Fed will start jacking interest rates in June, traders have been running around like chickens with their heads off this week, trying to figure out what to do next. Barring a definitive answer, it looks like some big investors or funds went back do dumping mass quantities this afternoon. It’s a hell of a way to run a stock market, but it’s the one we have.
Meanwhile, the U.S. Department of Commerce noted that new home sales in February rose a surprisingly large 7.8 percent. That’s good news, right? Well, maybe not. Once again, things are more complicated than that.
First of all, astonishingly enough, there continues to be a shortage of available housing for willing buyers. That’s why builders have been kicking up building activities in recent months. It’s good for builders, of course. But why is the supply so low?
Simple. Existing homes are not coming on the market fast enough. And the reason for that is simple, too. In many areas of the country, sellers still can’t sell their existing homes for a profit, part of the still-lingering effects of the Great Recession, which for these homeowners has never really ended. These are houses that would love to come onto the market, particularly by Boomer sellers who’d like to downsize and/or move down South or Southwest to warmer climes.
But no can do if you’re under water or can’t get a good price. This is also courtesy of the federal government, which since 2007-2009 has been more concerned with forcing banks to have 12 times more capital than they need sitting in their vaults while not doing one doggoned thing for the hurting middle class whose taxes bailed these clowns out.
It’s all a mess. And when traders and investors get confused, the kind of sloppy action we saw Monday and again today is just what you get.
We were stopped out of two of our new positions for a loss, and the rest of our new buys aren’t looking very happy this afternoon. So instead of coming up with a new money-making theory, we’re just going to skip today’s trading tips because we don’t have any.
It’s back to the Valley of Confusion for the Maven. We’ll try again tomorrow. But we are beginning to feel that 2015 may not be a very good time for the average investor to make any money here.Click here for reuse options!
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