The bulk of this year's Santa Clause rally may have been what
we saw Wednesday afternoon after the Fed came out with its
measured Taper announcement. We may get some modest gains on top
of that short burst of positive activity in the remaining few,
mostly low-volume, trading sessions, but likely not much more.
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In fact, if the persistent uptrend in treasury yields continues,
the gains could very well stall out. Treasury bonds certainly
didn't show as much enthusiasm for the Fed's announcement as
stocks did and have continued push yields higher. This morning's
positive revision to Q3 GDP will likely further play into the
bond market's skepticism of the Fed's long-term interest rate
guarantees. And therein lies the threat to the stock market.
Stocks can't continue to move higher in the face of a treasury
yield complex that has tuned out the Fed. It hasn't happened yet,
but the risk is very real.
One corner of the market that appears to be behaving contrary to
pre-Taper-announcement concerns is the emerging markets. These
markets were hit hard earlier in the year when the Fed first
floated the Taper idea, but haven't seen as much volatility since
the actual announcement. That said, it will be premature to
believe that these markets are out of the woods already. In fact,
Turkish and Indonesian currencies appear to be in the market's
cross-hairs already and the other big vulnerable economies of
India, Brazil and South Africa not expected to escape pain for
that much longer either. And what's happening in emerging markets
is a likely a preview of what will happen to other high yield and
capital constrained corners of the markets.
In corporate news,
) came out with weaker than expected results, with the
beleaguered smart-phone maker not only coming short of market
expectations, but also taking a major inventory write-down. Truck
) also missed expectations.