With the FOMC policy meeting scheduled for June 25th, the uncertainties of their actions can only cause panic for traders on Friday and Monday, June 23rd. Monday has Consumer Confidence, Durable Goods Orders, and New Home Sales scheduled for release. Do you feel confident in any of those data points? POTC reiterates there is no reason whatsoever to be long stocks in the face of a potential interest rate hike. Two of the Fed governors have probably made up their minds to hike rates by 25 basis points, or a quarter of one percent come Wednesday June 25th. There were two dissenters to the rate cut last time, so a rate cut at this point is out of the question. With Paulson and the Fed governors addressing a strong dollar all last week, it looks certain a rate hike is ahead. Please remember that Wall Street rarely rallies before the first fed hike, and rarely rallies after it. Some feel this time is different because of the weak greenback and high crude oil. But what happens if oil fails to pull back after the FOMC raises rates? The anticipation of that psychology still out weighs the bullish argument.
The positives remain:
1) Election year;
2) GDP fails to signal recession;
3) Treasury Market sell off;
4) Extreme pessimism in the Michigan Consumer sentiment (contrarian indicator eventually).
However we feel the positives are outweighed by the negatives:
1) Rising Unemployment;
2) Crude oil fails to break down;
3) Rising food prices;
4) Hurricane season of 2008;
5) NASDAQ gap at 2,300;
6) Weak greenback;
7) Uncertainty surrounding the June 25th FOMC decision.