Date: September 16, 2014

Headwinds Abound This Week

Almost all markets finished on a sour note last week and that spilled over to begin the new week. While I have written about stocks needing a short-term breather, I was surprised that treasury bonds could not get a lift as stocks weakened. In fact, both stocks and bonds peaked the same week, but bonds sold off more significantly, something that is unusual.

The major stock market indices certainly look like they want at least a little rally, but the bigger question is will that occur right here or perhaps after the Fed concludes their two day meeting on Wednesday at 2pm. So far, the bulls are trying to mount an attack. Investors are concerned that Yellen & Co. might strike the words “considerable period” from the statement, which would be interpreted as the Fed hiking rates sooner than the 6 months initially described by Ms. Yellen’s at her first foot in mouth chat, also known as her press conference.

Besides tomorrow’s FOMC announcement, the market has also been facing three distinct headwinds this week. First, on a calendar basis, this is a particularly weak time of year through the end of the month. Second, market sentiment into last week had become very bullish, which can signal that investors have much of their money already in the market. Historically though, sentiment impact beyond a few weeks usually requires a catalyst to get the snowball moving downhill.

Finally, the largest initial public offering of all time, Alibaba, comes to market this week. With current pricing indications, it looks like the company will raise roughly $22-24 billion. That money has to come from somewhere and it stands to reason that it’s likely coming from funds using some spare cash and selling current tech holdings.

The rest of the week is going to be action packed, but the bull market remains alive, albeit, a little wounded.

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Paul Schatz, President, Heritage Capital