Stocks opened the day higher but then reversed and finished with a loss of 351 points to close at 23,323 on heavy volume. This marks a low for the year and the Dow is back to support levels seen in March. IBD has markets in correction mode. The Dow is now off 5.7% this year. Utility and telecom stocks were higher today as were energy stocks thanks to a rebound in oil and gas prices. Leading the way lower was big growth stocks, banks and just about everyone else.
The Federal Reserve today announced another rate hike and lifted the Fed funds rate to a range of 2.25% to 2.5%. This is the 4th rate hike this year. The Fed also however cut back on future rate hikes from 3 to 2 and said basically that while the US economy looks good, they are seeing signs of softening in overseas economies and so are becoming more dovish and might even take a pause. The White House and several large investors were hoping the Fed would not raise rates at all as they fear a combination of simultaneous rate hikes and bond sales to unwind QE3 is unprecedented and might take cash out of the system thus hurting consumers and non-financial corporate debt. The market in general had hoped for a pause in rate hikes and today’s news was a disappointment to them. The general thinking seems to be that fundamentals are good but yellow lights indicating possible stress points are starting to blink.
One thing contributing to this market pullback might be large investors that are pulling huge chucks of money out of hedge funds before the end of the year. Hedge funds manage over a trillion dollars and, according to a NY Post article, have been getting whacked this year causing investors to “flee the scene” so to speak. One well regarded hedge fund manager on Bloomberg confirmed this trend. It will be interesting to see if this money comes back to work in January.
Oil prices rebounded today after U.S. data showed strong demand for refined products. Oil has been falling as a supply glut is running smack into fears of a slowing global economy. WTI crude finished the day up 3.7% to $47.96.
Please call me if you would like to talk. 206-352-9205.