What’s Wrong With This Picture?
Look at the headline…New home sales: Biggest drop ever. Now look at the market’s reaction. Stocks up sharply. This was after weekend futures pointed to a bad, bad day today. Bonds reacted in a way that should be expected with yields dropping and prices increasing. Oil was up slightly and the dollar dropped slightly.
What does Wall Street know that we don’t? Bad housing news should send the markets tumbling, but it didn’t. The Fed meets to discuss rate policy on Wednesday and Thursday after last Tuesday’s surprise 3/4 point cut. It was widely expected the Fed would cut more this week, but the revelation of a rogue trader at a French investment bank as the real source for last week’s world market woes may leave the Fed holding instead of cutting. Wall Street is still betting on another cut of .25 to .50.
One day does not a trend make, but I find today’s market activity very puzzling. It’s obvious that short term rates will trend down this year. The Fed has shown a willingness to step in that creates confidence in equities, though many question what that policy will do to the dollar. It’s going to be a wild and crazy ride this year so be sure to keep your arms and legs inside the vehicle at all times!