Wednesday, the Federal Reserve will end two days of intense meetings and decide on monetary policy. There has been an underlying sense of uncertainty in the market awaiting the Feds decision on interest rates.
On September 18, the Federal Reserve cut the key interest rate for the first time in three years by 50 basis points to 4.75% in order to stimulate the slowing economy and counter the precipitous drop in the housing market. Since then the Federal Reserve has cut interest rates another 250 basis points to 2.25 percent.
What variables will the Fed consider..?
-The Housing market- which is at multi-year lows
-Inflationary pressures i.e. Oil and food prices
-Employment numbers
-GDP numbers
-The Dollar
It has been the consensus that the Fed will cut another quarter point for pure market psychology to 2 percent. However, the main focus of the meeting will be the Feds comments on inflation and future action. If the Fed implies that they are hawkish on inflation that will strengthen the dollar and possibly break the trend in the commodities market. However, if the Fed stresses that they will continue on the current path to stabilize the credit and housing markets the current trends are indubitably intact.
A lot can happen in one day!
In Tuesday’s trading session, crude oil fell more then $3 to settle at $115.63 a barrel. While Gasoline futures eased $.0912 to settle at $2.939 a gallon. The energy complex was under numerous influences. First, the major North Sea oil platform in Scotland came back online, the strengthening of the dollar in the face of the Feds decision, and the IEA report on crude and gas demand. The report stated that demand for petroleum products dropped 8.5% and demand for gasoline fell 6.2% in February. Alleviating some concerns on supply/demand imbalances.
However, one should not put to much merit into one report. The landscape is changing on a daily basis with incessant volatility, where traders should move ahead with cautious optimism deciphering all pertinent data (The Fed, dollar, inventory numbers, Nigeria, Iran, market politics, etc.) and hedging their trades fittingly. It is my opinion that we are in a long-term multi-year bull market and the tides didn’t turn just yet.
Note for safe bet: earnings, earnings, earnings. In the energy complex, I like the drillers. Whether oil is at $100 or $130 a barrel it is still profitable and should report strong numbers. As for the rest of the market concentrate on companies that have good earnings and are still making money. Even with the recent run-up, there are still value plays left.
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