Market Commentary: At yesterday’s widely anticipated FOMC meeting, the Fed decided to lower the fed funds target rate to 4.25% and the discount rate to 4.75%, a reduction of 25 basis points for both. The typical market reaction to a Fed interest rate change is an immediate increase in volatility with a couple of directional reversals thrown in, all within the first hour of post-announcement trading. Yesterday was different. Volatility picked up, but all the action was to the downside. The market was apparently signaling its displeasure with the magnitude of the cut. Overnight, the Fed joined forces with the European Central Bank, Bank of England, Bank of Canada, and the Swiss National Bank to inject billions of dollars (and other currencies) into the banking system. The markets applauded this move by gapping up at today’s open and recapturing the better part of yesterday’s sell-off. The euphoria quickly faded with stocks drifting lower until the final hour when they briskly sold off and then turned around to rally into the close.
Treasury yields climbed most of this past week. The 10-year Treasury yield was hovering around 4.1% prior to the Fed announcement and then plunged to finish the day below 4.0%. Today, following a path similar to the stock market, the yield surged back up to 4.18% shortly after the open and then drifted lower to close at 4.08%.
Sectors: Energy climbed back into the #4 spot in our sector rankings this week, and crude oil moved back above $90. There is a noticeable disjuncture when viewing the absolute strength graphs of the major sectors. The chart depicts a typical smooth decline in strength as we move down the list from Materials to Industrials. At that point, there is a sharp break in graphical display before the poorly performing sectors of Consumer Discretionary, Financials, and Telecom show up. It almost looks as if there are a handful of sectors missing from the chart that should be inserted between Industrials and Consumer Discretionary, but that is not the case.
Styles: Once again we have very little change in the relative rankings among the various styles even though the absolute strength improved across the board. The domestic market is clearly favoring Large Caps over Small Caps and Growth over Value.
International: Latin America led the global charge this past week and moved into our top position. The Russian market also performed quite well, helping to improve the standing of Diversified Emerging Markets. Canada is at the bottom of our list again, with the US performing only slightly better.
Treasury yields climbed most of this past week. The 10-year Treasury yield was hovering around 4.1% prior to the Fed announcement and then plunged to finish the day below 4.0%. Today, following a path similar to the stock market, the yield surged back up to 4.18% shortly after the open and then drifted lower to close at 4.08%.
Sectors: Energy climbed back into the #4 spot in our sector rankings this week, and crude oil moved back above $90. There is a noticeable disjuncture when viewing the absolute strength graphs of the major sectors. The chart depicts a typical smooth decline in strength as we move down the list from Materials to Industrials. At that point, there is a sharp break in graphical display before the poorly performing sectors of Consumer Discretionary, Financials, and Telecom show up. It almost looks as if there are a handful of sectors missing from the chart that should be inserted between Industrials and Consumer Discretionary, but that is not the case.
Styles: Once again we have very little change in the relative rankings among the various styles even though the absolute strength improved across the board. The domestic market is clearly favoring Large Caps over Small Caps and Growth over Value.
International: Latin America led the global charge this past week and moved into our top position. The Russian market also performed quite well, helping to improve the standing of Diversified Emerging Markets. Canada is at the bottom of our list again, with the US performing only slightly better.
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