The Markets – little movement after the Rate Hike
By Robert Perrego, at 4:58 pm on February 19th, 2010The surprise hike in the discount rate by The Federal Reserve after the close yesterday turned into much ado about nothing today. Pfizer Inc. (NYSE: PFE) was the largest gainer in the Dow Jones Industrial Average today, rising a mere 26 cents (+1.46%, $17.99). The markets traded themselves to a standstill with the areas you might expect to see impacted; gold, oil and stocks ending up pretty close to where they were at yesterday’s close. The Dow Jones Industrial Average saw all component stocks but three finish with less than a 1% move up or down with an even split of 15 logging gains, 14 losses and 1 unchanged.
The Dow Jones Industrial Average finished with a gain of 9.45 points (+0.09%, 10,402.35) while the S&P 500 tacked on 2.42 points (+0.22%, 1,109.17). The Nasdaq 100 closed down less than a point at 1,823.32.
Traditionally, the stock market rises as The Fed raises rates. The fact that rates are going up is signaling the economy is heating up and this is good for stocks. The one bogeyman we have in the mix this time is that with interest rates coming off a base of near zero, the dollar has been used for the carry trade for the first time in history. In the after-market yesterday, the dollar traded up as much as 1% (a big move for the greenback) and if there are still large carry positions on, unwinding them to buy the dollar shorts in could cause significant selling pressure.
The PowerShares DB US Dollar Index (NYSE: UUP) opened up 0.76% ($0.18) this morning and traded as high as up 1.06% ($0.25), before declining for much of the day to close up only 0.29% ($0.07). The response to the move in the dollar was that when the dollar was near its highs, the S&P 500 was logging its low trading range of the day. This leads me to believe that the carry trade is still an important factor in the stock market. As The Fed fired this ’shot across the bow’ of the carry trade cowboys, the best outcome possible would be that these carry trade positions are unwound in an orderly fashion over time and do not create heavy selling that brings the market down. New York Fed President William Dudley commented after the hike yesterday that the current accommodating interest rate policy will remain in place for an ‘extended’ period of time.
Goldman Sachs upped their outlook on discount brokers and specifically upgraded Charles Schwab Corp. (NSDQ: SCHW) to neutral from sell, causing the stock to jump 5.16% (+$0.92, $18.73). Tradestation Group Inc. (NSDQ: TRAD) gained 50 cents (+7.65%, $7.03), Options Express Holdings Inc. (NSDQ: OXPS) added 60 cents (+4.02%, $15.49) and Ameritrade Holding Corp. (NSDQ: AMTD) finished higher by 44 cents (+2.50%, $18.03).
The online broker with the hilarious baby and “the lottery is not a retirement plan” commercials, E-Trade Financial Corp. (NSDQ: ETFC), seems to still be mired in toxic trouble with their mortgage portfolio as the market only saw fit to buy the stock higher by a penny (+0.64%, $1.58). Could the more favorable outlook for the business of online brokerage bring buyers calling at E-Trade’s door? This still remains to be seen as rumors have floated around trading desks for months about Ameritrade swooping in, but there has been no official action thus far.
New York spot gold was up $8.10 an ounce to $1,116.20 (+0.73%, 4:04 p.m.), and note that the later ‘close’ of the gold market after the stock close yesterday included the rate announcement. Gold was up as much a $18.60 an ounce during the day. Nymex crude closed strong to finish up 88 cents a barrel (+1.11%, $79.94, 4 p.m.) and is tickling $80 a barrel again. News out of the Middle East regarding surface to air defensive missile sales to Iran is putting a window on when a nuclear facility air strike could be launched by anyone. This could be either adding to the strength in oil this cycle up, or could just be a very good reason why you should not get short oil now.
Finally, Tiger Woods was on TV today apologizing for what happened in Vegas that did not stay in Vegas. President Obama was also in Vegas today hanging out with shady characters (other politicians) after dragging the town’s name through the mud over the past year. I doubt Obama is going to have as much fun as Tiger did there. What Tiger did, or did not do, is none of my business and hopefully he just gets back to playing golf and minding his own business – much like all the rubbernecks that have been watching his life collapse are not. Given the choice I would take the billion dollars, golden golf stroke and public ridicule, and I think you would too.
Have a great weekend.
