Why Weak Data = Strong Stocks
Retail Sales, PPI, and Industrial Production all disappointed growth expectations Thursday. So why did stocks rally? It's the same old tune this market has been whistling for years: Easy Money Forever.
We know that one little rate hike shouldn't really matter to the economy or the market. But if the hawks get their way -- and they've got a shot since Boston Fed's Rosengren, the former dove who caused the 2.4% meltdown last Friday, switched teams -- then investors will perceive a sea change in policy.
That's because Rosengren's philosophy is now the more rate hikes the better. Say what? Here's his logic: Fed history shows that waiting too long to nip budding inflation will require more rapid hikes later, which usually provokes a recession.
Crane Watching in Boston
"A failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery," he said last week. And he's worried about real estate in particular as a keen watcher of the number of construction cranes in his city.
So that's the setup for next week's Fed matchup. The hawks have a real chance to finally win a game by converting the vote into a quarter point rate rise. And that would give them strength unheard of in 7 years, which would get investors worried about another hike or two by this time next year.
Until game time next Wednesday, the trading range is clear. S&P 2170 should keep a lid on dovish optimism and 2120 will be the floor that keeps hawks from dive-bombing the market.
Best,
