Time To Revisit Asia And Interpreting FedSpeak

The Final Numbers - The Fed News: The market began the day in the green ahead of the Fed meeting, which was a surprise to many because the majority of the time stocks will be flat before the announcement. The Dow closed the session up mere 4 points after being down as much as 18 and up as many as 117 points. The late session selling is not a promising feature. The S&P 500 held on for a more modest gain of 7 points or 0.6%. The NASDAQ was the big winner, gaining 32 points or 1.4% as it broke a three-day losing streak.

The Bottomline: The S&P 500 was up double-digits before the announcement and after the lackluster statement was released it did not move much. The initial knee-jerk reaction higher was followed by the predictable 10-minute sell-off before another rally ensued. As I said yesterday, I felt the market was sitting back and waiting for the Fed announcement before making a move higher. The combination of a sell-off in the price of oil and an extreme oversold technical condition was enough to send stocks higher. I expect more upside potential in the final two days of the week.

Interesting Number: Cocoa hits a new all-time high - look out Chocolate Lovers!

The Daily ETF Update - Battered Asia Rebounds

News: ETFs that invest in Asia, whether it be single-country ETFs or regional vehicles, they have all been hit hard over the last two months.

The Bottomline: Over the last two months the S&P 500 was down approximately 5% as the Asian ETFs fell much further. India was hit the hardest with the iPath India ETN (symbol: INP) tumbling 24%. The PowerShares Asia Pacific ETF (symbol: PUA), which invests in Hong Kong, Australia, Singapore, and China fell 15%. Thailand was another victim of the selling, the iShares Thailand ETF (symbol: THD) dropped 14%.

The beating the Asian ETFs took during the last two months was enough to snap the long-term uptrends and are a cause of concern in the near-term. That being said, if you believe in the long-term growth prospects of the region, now can be a time to begin building positions. Buying 1/2 of a position now and if it falls another 10%, buy more can be a good strategy to build a long-term position in an ETF you want to own for years. HOWEVER, this is the one and only time I would support a dollar cost averaging strategy. Normally if the ETF or stock falls you either hold or sell, never buy more.

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McCall’s Call - Interpreting The Fedspeak

News:The Fed announced they would keep the fed funds rate steady at 2% today. The highlights from the statement include:

“Recent information indicates that overall economic activity continues to expand, partly reflecting some firming in household spending.”

“Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters.”

“The committee expects inflation to moderate later this year and next year….. uncertainty about the inflation outlook remains high.”

“Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased.”

The Bottomline: If you were looking for surprises and intrigue after reading today’s FOMC statement you would be disappointed. Nobody in their right mind felt the Fed would raise rates and what they committee stated in the release is as close to the truth as it will get. The main points that I take from the statement is that the FOMC believes the economy is holding above recessionary levels and is in the midst of a slowdown thanks in large part to rising energy prices and the falling real estate market.

When it comes to inflation, the FOMC is a bit murky. In one breath, they see inflation moderating by the end of the year and a second later they refer to the uncertainty about inflation. In the end, the economic growth of the US is no longer the main concern of the FOMC as they turn their attention to battling inflation. What this could mean to investors is that an interest rate hike is not out of the question in the early fall. This would push the dollar and likely put a lid on commodity prices. More to come on that in the weeks ahead.

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