Wednesday, September 16, 2015

Liftoff Scenario (excerpt)

If the FOMC doesn’t start raising interest rates tomorrow, that wouldn’t surprise me. I have been anticipating either one-and-done or none-and-done for 2015 since September 2014. If it’s none-and-done tomorrow, there could be a significant liftoff in the prices of commodities, bonds, stocks, and currencies around the world.

It might have started yesterday when the S&P 500 rose 1.3% to 1978.09. The index is up 5.9% from 1867.61 on Tuesday, August 25, which I predicted might be the low for the latest correction. It is down only 7.2% from the May 21 record high. The rally in recent days is especially impressive given that the latest batch of Chinese economic indicators was weak, as I discussed yesterday. This suggests that yet another relief rally is underway, this time following the panic attack that followed the depreciation of the yuan.

What if the FOMC votes to hike rates by 25bps on Thursday? Odds are that Fed Chair Janet Yellen will spend most of her press conference that day reassuring the markets that further rate hikes are unlikely for some time. So there could still be a liftoff in the financial markets, but a more gradual one.

Today's Morning Briefing: A Fine Mess. (1) A mess is a mess. (2) The Fed’s bad joke. (3) Ultra-easy policies aimed at increasing financial stability have decreased it. (4) Hard to normalize monetary policy without causing financial instability. (5) Capital markets taking the hits rather than the banks this time. (6) Lots of headlines warning Fed not to do it. (7) Liftoff for stocks, if not for interest rates? (8) US consumers doing what they do best. (9) Gasoline windfall boosting vehicle miles traveled. (10) Forward revenues and forward earnings providing support to S&P 500. (11) Q3 earnings season should result in small gain for earnings. (More for subscribers.)

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