• 288 days Will The ECB Continue To Hike Rates?
  • 288 days Forbes: Aramco Remains Largest Company In The Middle East
  • 290 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 690 days Could Crypto Overtake Traditional Investment?
  • 694 days Americans Still Quitting Jobs At Record Pace
  • 696 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 699 days Is The Dollar Too Strong?
  • 700 days Big Tech Disappoints Investors on Earnings Calls
  • 701 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 702 days China Is Quietly Trying To Distance Itself From Russia
  • 703 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 707 days Crypto Investors Won Big In 2021
  • 707 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 708 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 710 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 710 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 714 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 714 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 715 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 717 days Are NFTs About To Take Over Gaming?
  1. Home
  2. Markets
  3. Other

Yellen's Confirmation and Stocks

It's Always About The Fed

We are not big fans of quantitative easing (QE), but a fair question is where would the markets, economy, and employment be if the Fed had never printed money? The obsession with the Fed says QE matters to the markets; and what matters to the markets impacts the value of our portfolios. The next round of Fed input is Thursday's confirmation hearing for Janet Yellen, which is arguably the most important event for the markets this week. Mohamed A. El-Erian, of PIMCO, made the following points about what to expect Thursday in a CNBC article:

  1. Janet Yellen is qualified.
  2. Policy evolution rather than revolution.
  3. She values Fed's committee setup.
  4. She sees little conflict between regulation & stimulus.
  5. She does not consider Congressional inaction a deal breaker.

The markets focus on the short-term, and that is where the emphasis will be Thursday as Janet Yellen sits behind a tent card. What is El-Erian's take?

Look for Thursday's hearing to signal that, despite imperfect policy tools, the Fed is committed to keeping its foot on the accelerator even though outcomes may well continue to fall short of expectations, and even though the "costs and risks" are likely to rise. If it ends up making a mistake, something that it will try very hard to avoid, it would likely be one of excessive accommodation rather than premature tightening.


Investment Implications - Market Agrees With El-Erian

The financial markets seem to align with the "Fed is committed to keeping its foot on the accelerator" theory. The weekly S&P 500 chart, as of 1:00 pm Wednesday, remains in a bullish uptrend.

$SPX S&P 500 Large Cap Index INDX

The weekly chart of technology stocks continues to reflect a net win for bullish economic conviction relative to bearish economic conviction (the trend is up).

$COMPQ Nasdaq Composite INDX

Our market model detected observable and positive changes in the market's risk-reward profile back on October 10. Until the evidence shifts in a meaningful and bearish manner, we will continue to hold our positions in U.S. stocks (VTI), technology (QQQ), energy (XLE), financials (XLF), small caps (IWM), foreign stocks (VEU), and emerging markets (EEM). As we noted on November 12, we would like to see some improvement in emerging markets. Should EEM remain weak, we may reduce our exposure for a second time before the markets close this Friday.

 

Back to homepage

Leave a comment

Leave a comment