This question is not as preposterous as it may seem.
For the financial markets, the biggest event of the week starts tomorrow: On Wednesday and Thursday (Feb. 10-11) Fed chair Janet Yellen will appear before Congress to deliver her semi-annual Monetary Policy Report.
"It's huge." That's how one strategist put it this morning, in a CNBC interview about the importance of Yellen's testimony.
Why are all eyes on Yellen? Maybe because by now, almost everyone has forgotten how powerless the Fed appeared in 2007-2009, when none of its measures could stop the financial crisis. Despite the recent market chaos, six years of rising stock prices reaffirmed the notion that the Fed can move mountains. "As the Fed goes, so do the markets" is the current mantra -- so, on Wednesday and Thursday, analysts will be listening carefully: Will Yellen mention the ongoing market turmoil? Continue reading "Can The Fed Drop Interest Rates Below 0%?"→
Is Janet Yellen suddenly signaling an imminent rise in U.S. interest rates?
At a conference in Washington Wednesday sponsored by the Institute for New Economic Thinking, in an answer to a question from co-panelist Christine Lagarde, Yellen said:
"I would highlight that equity-market valuations at this point generally are quite high. Now, they're not so high when you compare the returns on equities to the returns on safe assets like bonds, which are also very low, but there are potential dangers there."
The Federal Reserve chair also had something to say about interest rates. "We could see a sharp jump in long-term rates" after the Fed starts to normalize – i.e., raise – interest rates, she said.
Her words had the desired effect, if indeed that was her desire. Stock prices dropped around the globe, as did bond prices, driving yields sharply higher. The yield on the 10-year German government bund jumped as high as 0.78%, its highest level in more than five months and up from just 0.08% only three weeks ago. The yield on the 10-year U.S. Treasury note rose above 2.20%, its highest level in two months and up more than 35 basis points in the past month. Continue reading "Yellen's Gaffe"→
All major U.S. stock indices posted gains last week except for the Russell 2000, which lost 1.2% and is also the only major index in negative territory for 2014. Despite the weakness in small caps, the broader market, as measured by the SP 500, has managed to rack up a decent 8.9% gain this year, largely on the back of technology issues.
The Nasdaq 100 is up 14.2% year to date. However, as I have been stating in this space for some time, if and when technology stocks stop leading, the broader market may be in for some significant problems over the near term.
Dow Makes New High, but Problems Persist
In last week's Market Outlook, I warned that the early September new closing high in the Dow Jones Transportation Average had not yet been corroborated by a new closing high in the Dow Jones Industrial Average, which, according to Dow Theory, was a red flag for the overall market.
That situation was averted last week by a new high in the industrials, clearing the way for more near-term strength in both indices.