What Will the S&P Do this Week?

[scagnt83]

We are basically back to zero for the year now on the S&P 500.. in just a weeks time... it will be an interesting month... any predictions?

 

[Norwayguy]

I predict it will either go up, or down or remain unchanged or a combination of the three....

What do I win?

 

[scagnt83]

I predict it will either go up, or down or remain unchanged or a combination of the three....

What do I win?

A few shares of Lehman.... I will give you a great deal on them

 

[DHK]

 

[Tahoe Ray]

I would much rather see some (accurate and positive) predictions about interest rates rather than the S&P...how much longer will this environment persist?

(I mainly sell covered calls on my positions...it seems to work well in this type of market)

But not to steal the thread, I'm interested in either subject...fact is, I have no idea. Most of my clients (who are financial advisors) are pretty optimistic.

However, the few clients that I have who actually work the market (a bond specialist and a couple of big traders) are really tentative. They are anticipating a big drop...

I'm not smart enough to analyze or predict what will happen...I just get nervous when the people who truly make a living trading say that they don't like the way things look.

 

[DWilly]

Still a lot of money being pumped into these markets by the FED. They're pulling out all the stops. But sooner or later there will be an event that rapidly gets beyond their control...that is when we'll see the 20%+ correction that is inevitable.
Probably good for another month, maybe even a few, but a lot of different metrics are getting shaky. A good many insiders have already reduced market exposure. Wonder what whispers they've heard?

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I would much rather see some (accurate and positive) predictions about interest rates rather than the S&P...how much longer will this environment persist?

(I mainly sell covered calls on my positions...it seems to work well in this type of market)

But not to steal the thread, I'm interested in either subject...fact is, I have no idea. Most of my clients (who are financial advisors) are pretty optimistic.

However, the few clients that I have who actually work the market (a bond specialist and a couple of big traders) are really tentative. They are anticipating a big drop...

I'm not smart enough to analyze or predict what will happen...I just get nervous when the people who truly make a living trading say that they don't like the way things look.

Very few financial advisers will ever be too pessimistic on the markets, even if the data says that they should be. Hard to sell mutual funds and such like that, and they can't have clients short the markets so they have no choice. Besides, they like to promote long term "investing".

 

[xrac]

I predict it will either go up, or down or remain unchanged or a combination of the three.... What do I win?

Way to call it Norwayguy.

 

[wingateexpress]

A correction is inevitable. Likely not this month but certainly by the end of this year.

 

[Norwayguy]

Way to call it Norwayguy.

It's amazing how much less I care about it since I know longer sell securities, I now sell guarantees. Clients do ask me now what I think and I reply I don't know no one does but the good news is what you have with me is protected, if the market does well then that is good if it does poorly you won't suffer.

 

[scagnt83]

I would much rather see some (accurate and positive) predictions about interest rates rather than the S&P...how much longer will this environment persist?

(I mainly sell covered calls on my positions...it seems to work well in this type of market)

But not to steal the thread, I'm interested in either subject...fact is, I have no idea. Most of my clients (who are financial advisors) are pretty optimistic.

However, the few clients that I have who actually work the market (a bond specialist and a couple of big traders) are really tentative. They are anticipating a big drop...

I'm not smart enough to analyze or predict what will happen...I just get nervous when the people who truly make a living trading say that they don't like the way things look.

This is a Fed subsidized market, pure and simple. Traders are watching everything the Fed does and says like they never have before. It is all they talk about anymore. Whenever they talk about other issues, it always is overshadowed by the Fed.


The market took a huge dip first of the year which correlated with Janet Yellen taking over the Fed from Bernanke.
She was always seen as a hawk who wanted to raise rates and stop QE.

But when the first release of Fed minutes hit, the market found out that she had no plans to raise rates anytime soon.... so the market shot up again....

Not to get on a soapbox, but this artificially low rates environment has been one of the largest subsidies ever to the rich. And one of the largest transfers of wealth ever too.



But back to what matters for us agents, Rates.

The Fed did announce that they are winding down QE over a 6 month period. That was the beginning of February.

This will definitely boost US Treasury rates. Which will boost insurance rates/reserves.

But so far I dont think that the market believes that they are really killing off QE. Usually they price in events before they happen.... but they have not yet....

The Fed lied (adjusted their previous forecast) multiple times over the past 2 years about changes in QE/rates. So they have a SERIOUS trust problem on wall street.

But they have already started to reduce QE. So it looks like it is in the process of winding down.... however long they decide to take to do it.


But the Fed Rate is the real key.
An almost 0% Fed Rate basically means that we are just giving away free money to the major banks. Right now I think it is around 0.75% for them to borrow from the Fed. That is just 0.50% above the current fed rate of 0.25%.

Back before 08' we were at 5%ish if I remember correctly. We have never in our economic history had rates this low for this long.....



I predict that the 10yT will be steadily above 3% by the end of the year. Maybe even up to 3.5%.
If QE really does end this year then who knows.... 4% could happen.

And if QE really does end, then China and other buyers of US debt will have a much larger influence over our economy.... with decreased liquidity in the US bond market (since the Fed would no longer be buying huge amounts of US bonds), US Treasuries might not look so attractive anymore without the guaranteed liquidity.



I dont see the Fed Rate changing for at least 2 more years. If we get a republican in the white house in 2016, then I think that we can guarantee a rate increase then.

If not, then it will be all about the "economy".... meaning jobs and the market....

The Fed for years had said that a 6% unemployment level was when they would raise rates. Now they have backed off and said that it could be possibly 5.5% or even lower before they raise rates....

So 2016 if we get a Rep in the White House.
Probably more like 2017 or later if we get another Dem.... and that is assuming that we do not have another major economic/market crisis....

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A correction is inevitable. Likely not this month but certainly by the end of this year.

I would have to agree. If not this year next year for sure. But the Fed could possibly keep things going for this year if they extend QE.

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Another thing that could effect both the market and US Treasuries is Europe.

A war or conflict in eastern Europe could cause a market drop plus cause a drop in Treasury rates (since US Treasuries are seen as a safe haven and demand for debt drives the yield lower).
That wouldnt be good for anyone or anything.

Europe also still has a serious debt problem that is largely being ignored by the markets, especially the bond markets.


The US also has some serious debt problems that the markets are totally ignoring as well.
We also do not have a very rosy economy at the moment, and the market is trading much higher than what it should be based on our GDP and our "true" unemployment levels.