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Daily Market Update – December 16, 2015 (7:30 AM) Yesterday was an unexpectedly strong day coming on the heels of a late day turnaround on Monday. It’s hard to understand why that turnaround happened as it seemed as if the market’s embrace of an interest rate hike decision was already celebrated and that moment had come and gone. It came on strongly as the Employment Situation Report was released and it disappeared very suddenly and with some gusto during most of last week’s trading, with a particular crescendo to end the week. Nothing happened over the weekend to change the landscape, yet after a day of big alternating moves, it now seems as if the trajectory is upward again. While that serves to reduce volatility, which had been on a decent rise over the previous week, the timing of any rally is good, as it comes at the end of a monthly option cycle. With a number of previous “Hail Mary” kind of option sales that were made a month or longer ago about to expire, I would love to be able to roll those over while still waiting for their inevitable attempt to reclaim some former glory. This morning’s futures are again up strongly as everyone awaits the FOMC’s decision at 2 PM. While we all expect that interest rate hike, there’s still likely to be some kind of pronounced reaction, but we’ve also seen those come and go and often in very quick fashion. What may be more interesting to traders, and it has often been the case, will be the words coming from Federal Reserve Chairman Janet Yellen during both her prepared text and her press conference. What everyone will want to know is whether she sees any interest rate hike as a “one and done” or whether she sees signs that the economy is really heating up and that further hikes in 2016 are going to be a likelihood. You would think that if the market is embracing this likely interest rate hike they would be disappointed if Chairman Yellen suggested that this may be a “one and done,” without necessarily using those words. The idea that the economy isn’t growing so much as to consider further increases in the coming year could be enough to remove the wind from a developing rally. Still, traders are putting their money on the likelihood that the economy is going to warrant some further FOMC tightening and their expectation than has to be that corporate revenues will be increasing and earnings will be, as well. Depending on how far into the future the FOMC’s crystal ball goes, that could mean an expectation of some evidence of improved earnings metrics as early as the January 2016 round of earnings, or perhaps the next quarter at the latest. Anything beyond that would be pretty disappointing and would have people questioning the wisdom of what is likely to be an interest rate hike announcement today. Like most people, I’ll be watching for the news and the reaction. I hope that the optimism continues at least until this week comes to its end. The market could use a year end rally to let it finally break into positive territory and maybe stay that way to end the year, but unless that rally is going to really be of fairly epic proportions, the year may end up about as flat as 2011 when the S&P 500 was unchanged for the entire year. |
