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Looking Past the Slowdown to the Green On the Other Side By Dr. Duru written for One-Twenty September 21, 2006 Looks like the Fed is still not done being done with interest rate hikes. Yesterday, the Fed delivered a very familiar statement telling us that it expects inflation pressures to moderate aloing with a slowing economy. The Fed is also trying to keep the market on its toes with the reminder that it could still decide to raise rates again at any time if the data commands such an action. The market has clearly chosen to focus on the rose and look past the thorns. Amazingly enough, I am increasingly reading and hearing expectations for rate cuts in 2007. Let's take a closer look at the logic that is working to maintain strong bids in the current market....
I also voted for some kind of correction by the end of September or early October. The prediction business is a hard game and a merciless taskmaster. (I really try not to do predictions, but they are so often a good tool for describing and illustrating my current frame of mind). It seems the bullish interpretations described above have enough supporters to sustain good buying power in the financial markets for now. The sharp downward shift in sentiment in the commodities markets is sending fresh cash into other equities - both defensive and growth (tech) stocks. Seeing both defensive and growth stocks rally strong here further confirms the sharp dichotomy in opinion on what's going on in the economy. I still maintain that this bull market is getting more and more tired with every rally. I look forward to revisiting this analysis at the next big move or high in the market (or the next air pocket!). Be careful out there! |