Thursday, November 19, 2015
The major indexes appear on track to start today's session modestly in the green, building on the post-Fed minutes momentum from Wednesday. It appears that good news is finally good news again.
Stocks went up Wednesday afternoon following the release of the Fed's October meeting minutes which indicated that most committee members favored a December rate hike as long as economic data remained on track. This reaction is along the lines of how stocks did following the September meeting non-decision when the Fed held back from lift-off despite widespread expectations of a decision otherwise.
What this means is that market participants have started seeing the Fed's lift-off decision as a vote of confidence in the health of the U.S. economy. In a way, the market has told the Fed in no uncertain terms to get on with the job and remove this lingering uncertainty about the timing of the first rate hike since 2006.
We could interpret this development as the Fed having boxed itself in for a December rate hike. But that's not the correct way to interpret this development, in my view. The Fed has always been data-dependent, with the key remaining piece of data ahead of the next meeting being the government jobs reading on December 4th.
The tone and substance of recent economic data has been mixed at best, though many in the market suspect that the bar for the Fed to give up on a December rate hike remains very low. What that means is that while recent economic readings may not have been very robust, they aren't weak enough to stop the Fed from raising in December.
As we mentioned in this space on Wednesday, lift-off is effectively guaranteed in the coming meeting unless the November jobs reading coming out on December 4th is dramatically worse. That doesn't seem likely given what we have been seeing lately, including this morning, in the weekly jobless claims data. It's good to see the market finally responding to good news as good news.
Director of Research
Note: In addition to this daily pre-open article about the market, economy, and the corporate earnings picture, Sheraz Mian also provides detailed earnings analysis in his weekly Earnings Trends and Earnings Preview reports.