Sector Rotation

2019-09-18 | TG Watkins

It’s Fed day again!

The time when markets come to a standstill as they hold their breath, waiting anxiously for nuanced words in the report, and of course, what the interest rate will be.

I have covered this event before in a Simpler Blog named “Don’t Fight the Fed” so I won’t repeat all that again. Instead, here is a clip of me on Yahoo Finance saying the same thing.

The CME’s FedWatch tool is the place to go to get a feel for which way the interest rate decision will go. In the clip, I point out that this time around no one really knows what the Fed will do as evidenced by yesterday’s likelihood of a rate cut at 50%. Today it is at 75% likelihood of a rate cut.

Another item we discussed was the trade war. To which my response was that there have been reports of the Trump administration wanting to keep things on the cool side as we go into the end of the year. This may be for two major reasons as I see it:

1. We are coming into the best time of the season for the market, and maybe some market specialists have gotten the word to the powers that be to keep things quite and let the market do what it does best, go up.

2. The end of the year is also the holiday season and when the American consumer goes into full force. If the public is feeling uncertain about the economy (the market) then they/we may not feel as giving with our dollars to retail outlets.

With the market near all time highs and having touched them late last week, it seems that the interest rate decision may already be baked into the cake. I expect some wild near-term moves, but it would be in everyone’s best interest to have the market go up.

I also touch on the wild sector rotation we have been seeing the last few weeks. Big, high growth names that have been darlings and safe havens are now getting dethroned, and beat-up bottom feeders are showing signs of life. So, if the market breaks out to new highs, it doesn’t appear it will do so with the old names, but instead, a new crop of value stocks that surge to life and lead the way.

We must keep an eye out for those new opportunities as their green shoots emerge.