Stocks’ Gift Is On Its Way
The Federal Reserve
is expected to deliver the market another half a percentage point cut in its
primary monetary policy tool, the federal funds target rate. This would be
the second half-point cut in just two weeks and a 1% total rate cut
would represent a potentially tremendous economic stimulus in a very short
period of time. A .50% cut would leave the fed funds target rate at 2.5%,
its lowest in 39 years. Interest-sensitive stocks, and especially many blue-chip stocks, benefit from a reduced cost of capital and will likely rally if
the Fed hands the economy and the market the 50-basis-point
“gift.”
The Dow is up 16 at
8853, the Nasdaq is up 10.43 at 1490.72, and the S&P 500 is up 3.14 at
1041.69.
However, the fed
funds futures, the most accurate predictor of the Fed’s rate moves in the
days preceding its FOMC monetary-policy meetings, is not pricing in a
for-sure 50-basis-point cut. In his
commentary today, TradingMarkets bond honcho Tony Crescenzi makes the
case that the Fed may only lower rates a quarter point, mentioning the
government and Greenspan’s desire to bring down interest rates in
longer-dated Treasuries. Longer-dated Treasuries have not fallen as much as
policy makers would like, limiting the recovery potential in the critical
housing and construction industries.
A quarter-point cut (totaling
75 basis points) would still provide tremendous liquidity and give the
economy the fuel it needs to accelerate. But stocks traders will likely be
disappointed should the Fed only cut by a quarter, and indices will likely
fall — in the short term — with a less aggressive rate move.
Airlines continue to
come back after hard landings in the wake of the 9/11 attacks. United
Airlines
(
UAL |
Quote |
Chart |
News |
PowerRating) is rallying for its third consecutive day after saying it
would cut certain fares by as much as 50% through the end of the year.
Southwest Air
(
LUV |
Quote |
Chart |
News |
PowerRating), a stock pointed out on multiple occasions on
TradersWire Interactive as having one of the better dispositions in the
hard-hit industry, is up 5%.
In the sectors, transports
(
TRX |
Quote |
Chart |
News |
PowerRating), +2.43%, biotech
(
BTK |
Quote |
Chart |
News |
PowerRating) +2.07%, and retail
(
RLX |
Quote |
Chart |
News |
PowerRating), +1.57%, are trailing airlines as the
strongest areas of the market. Only the Mexico index
(
MXY |
Quote |
Chart |
News |
PowerRating) is down by
more than 1%.
CV Therapeutics
(
CVTX |
Quote |
Chart |
News |
PowerRating) has held at 36.38 to
36.80 after hitting that level four times in two months, drawing a line in
the sand of support. Often, if a stock isn’t going down, it has no where
left to go but up. That CVTX also held at this level despite big declines in
the broad market is in itself a sign of good strength relative to the
market. Hence, CVTX now has double bottoms with small spikes in volume,
implying there is institutional accumulation occurring at the line-in-the-sand
level.
Just before the Fed’s announcement, CVTX is trading
in a Slim Jim at the top of its range and is up 2.22 at
41.20.