Stocks rally again – beware the Fed
January 30, 2013 / Stocks Insight
2 COMMENTS
Stocks around the world have been enjoying what is realistically a stealth rally over the past few months as the expansion of the Fed’s balance sheet has once again done its work in driving cash into stocks. But with this stock rally has come an improving economic performance in the US which has 10 year US Treasuries fretting as they continue to flirt with the 2% level as the run up to the FOMC interest rate announcement tomorrow morning Australian/Asian time.
Are stock markets overdone? Is the correlation to one for most stock indices a warning of risk? Is the record level of US Treasury puts as highlighted in the CFTC COT data over the weekend a sign that the bond vigilantes are stretched or are we on the verge of a break in the GFC market paradigm.
Here are a few charts that might be instructive.
There are clearly a lot of markets making multi year highs – if the recovery is real then there is no problem but if the markets recent performance is really just a reflection of the Fed’s balance sheet growth and bond buying program then the market might just be getting a little stretched.
I’m guessing puts are cheap at the moment – might be a good day to buy some.
Have a great day.
Greg McKenna
Twitter: @FX_Global
Tags: Federal Reserve, FOMC, S&P 500, Stocks extend rally
Please remember these are not recommendations for you to trade these are my views and I have my risk management tools and risk parameters that you do not have access to. Thus, this blog is for information only and does not constitute advice. Neither Greg McKenna nor www.globalfx.com.au has taken your personal circumstances, objectives or financial situation into account. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.
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About the author
Greg McKenna is Chief Investment and Market Strategist at GlobalFX He has 25 years’ experience in Banking and Finance specifically in Trading, Portfolio Management, as a Strategist and as a Treasurer. In 1998 Greg became Australia’s first currency strategist at Westpac before moving on to Head of Currency Strategy at NAB. As a Fund Manager with the NSW State Super Board he managed Cash, Bond and Foreign Exchange funds with assets under management in the many billions of dollars. More recently he was Treasurer of Newcastle Permanent Building Society where he was responsible for funding, liquidity, balance sheet and interest rate management for the $7.5 billion institution.
2 Comments
2013-01-30 07:19:05
[...] The best thing to say is that this is still a relief rally and the onus is on the bears to make the case. For me it is a simple case of pessimism fatigue – we see this in markets all the time and the fact the world didn’t end and the data has been printing a little better in Europe in particular aided and abetted by the Fed’s bond buying is driving stocks everywhere higher. I have done a piece this morning looking at all the stock market indices I follow and which in the run up to the FOMC announcement tomorrow morning might help tell if they are overdone – you can find it here. [...]
2013-01-30 07:24:23
[...] The best thing to say is that this is still a relief rally and the onus is on the bears to make the case. For me it is a simple case of pessimism fatigue – we see this in markets all the time and the fact the world didn’t end and the data has been printing a little better in Europe in particular aided and abetted by the Fed’s bond buying is driving stocks everywhere higher. I have done a piece this morning looking at all the stock market indices I follow and which in the run up to the FOMC announcement tomorrow morning might help tell if they are overdone – you can find it here. [...]