What the hell are they thinking?

Easy does it. [Logo]( Weekly Market Update Today is September 22, 2023 Dear Reader, Hello again and Happy Friday! If we had only two words to sum up the trading week that just passed, we would probably go with: Interest Rates. Give us three words, and we’d go with: Higher for Longer. That was the message the Fed sent on Wednesday. Bill Spencer True Market Insiders That was the message the Fed sent on Wednesday. I won’t belabor what that means, as you’ve probably heard and read your fill of it by now. Now, I guess if you’re in the news business, then you sort of have to publish the “news.” But did CNBC really think that an entirely expected Fed decision really deserved to be “headline” news? They write (emphasis added), “Markets had fully priced in no move at this meeting, which kept the fed funds rate in a targeted range between 5.25%-5.5%, the highest in some 22 years.” No move. Good to know. But then things get strange. “Stocks oscillated as Fed Chair Jerome Powell took questions during a news conference.” To oscillate is to swing back and forth. Powell began speaking at 2:30PM. And it would appear that the market did in fact bounce back and forth from that point on, as if hanging on his every word. Here’s a chart of the S&P 500 for Wednesday, September 20. The candlesticks are all 3-minutes. The purple arrow points to 2:30PM ET. You can see (highlighted in yellow) the way the market traded in tight sideways horizontal channels over periods of about 20 minutes. The index would close out the day down -1.33%. The Dow Jones showed a similar pattern and also closed lower on the day. As did the Nasdaq Composite. I call this strange because I can’t for the life of me imagine any trader allowing themselves to be buffeted back and forth in real time, based on what Jerome Powell was saying. Or what anyone was saying.     That would be like a sports gambler changing his wager with every ball and every strike. I’m not saying interest rates are unimportant. They’re implicated in the strength of the dollar, for example, which affects stocks. Higher rates in general are a headwind for stocks. When rates are low, investors can borrow at will and buy equities, thus driving prices higher. But at the same time, low rates are a massive temptation to over-leveraging, which gave us the March regional bank meltdown. And higher rates affect different businesses differently. When Paul Volker slammed the brakes on the economy in the 1980s by raising rates, construction firms (among others) took it on the chin. And clearly the market fell following the Fed announcement. So, yes… Pay attention to interest rates. Just don’t let yourself get whipsawed around emotionally. That’s never a good idea. I wonder how many of those “oscillating” traders we read about a moment ago know that September is typically the weakest month for stocks? Probably all of them. Plus, they had already priced in that the Fed was going to pause. And this isn’t the first time the Fed has suggested that rates will remain “higher for longer.” So why all this oscillating? What the hell are they thinking? Finally, no matter what the Fed does or does not do… Some market sectors will always outperform others. That’s the most important thing to keep in mind if you want to invest successfully. Easy does it! Have a great weekend! Bill Spencer Editor-in-Chief, True Market Insiders P.S.: One more thing (a good thing) about higher interest rates: they give you yield. After all, who doesn’t want to generate investing income alongside capital appreciation? Costas Bocelli has a way for you to do both. I’d say more, but I’d never do justice to what Costas has to offer you. 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