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By: Brian Price
Chris Louney of RBC Capital Markets explains how recent highs and lows for gold coincide with Donald Trump's chances of becoming president. » Read More
If the Fed announces a September rate hike on Wednesday, investors better brace themselves for what could come next, says one market watcher.
"Every time the Fed has removed accommodation, whether it was the end of QE or last December's rate hike, the market had a tantrum," Peter Boockvar, chief market analyst at The Lindsey Group said Tuesday on CNBC's "Futures Now." "I'm not going to think that this is going to be anything different."
Last time the Fed raised interest rates was in December 2015. The S&P 500 proceeded to drop more than 9 percent in the next month off of the rate hike.
While the markets have stayed in a tight range over the last several months in spite of big events like Brexit and poor earnings, Boockvar warns that may not be the case this time around.
"The equity market has not cared about the trajectory of earnings, which is going to be negative for six quarters in a row," he said. "It hasn't cared about the trajectory of the economy, which is running at a 1.5 percent pace."
"It's only cared about a suppression of interest rates," explained Boockvar. "So any reversal of that, whether it's from the short end or the longer end, I think we're going to have another tantrum."
Boockvar is also keeping an eye on the potential fallout from the Bank of Japan meeting, which he believes will actually have more sway on global bond yields than the Fed meeting.
The Fed will announce its decision on Wednesday at 2 p.m.
Gold prices, which have been on a tear for most of 2016, appear to have peaked, according to one top market watcher.
This year's 24-percent rally in gold "was completely justified. It was kind of a perfect storm for gold," said RBC Capital Markets Commodity Strategist Christopher Louney on CNBC's "Futures Now" recently. Fears stemming from the U.K.'s vote to exit Europe, Federal Reserve policy jitters and worries about the economy appear to have run their course, Louney said.
Gold, a precious metal often seen as a safe haven for investors, has been losing its luster even since those risks and situations began to fade. Since hitting its high for the year on July 6, gold has dropped four percent.
"The majority of this rally was driven by two fundamental factors and they were both investor demand. So in our view, it really has been a one-legged rally," said Louney.
The bulls have history on their side, according to Oppenheimer technical analyst Ari Wald.
Just as the markets saw their share of ups and downs this week, future expected market volatility, as measured by the VIX, has gone through the same. The VIX hit its highest level in almost three months on Tuesday and the index has surged more than 30 percent since last Wednesday.
While that would generally be taken as a sign of rising investor anxiety, for Oppenheimer technician Ari Wald, "this volatility is marking an opportunity to buy stocks." Wald looks back to the history books to point out something that he sees repeating again.
"Since 1990, we've found that when the VIX spikes 50 percent and the S&P is in an uptrend, [for] the next six months, the S&P averages 8 percent gain versus an only 4 percent gain during any six-month period," he said Thursday on CNBC's "Futures Now."
Wald's chart shows that such a trend actually happened this year. Volatility spiked near the end of 2015 while the S&P 500 was on the rise. Though stocks did fall in February of this year, the S&P ultimately rose more than 10 percent from January to the end of June.
On a long-term chart of the S&P 500 versus the VIX, Wald shows that the S&P 500 recently broke through resistance, a breakout that coincided with a spike in the VIX.
In other words, Wald believes that a short-term market rally is in the works, and investors may want to cash in.
Oppenheimer has a year-end target for the S&P 500 of 2,250, meaning that they believe the market could rise almost 5 percent.
New highs for the markets are on the way, according to one Wells Fargo analyst.
The past week has been choppy for stocks, as investors weighed the potential for a September interest rate hike by the Federal Reserve.
"We think this volatility was long overdue, the Fed speak really is an excuse for a lot of people who were sitting on profits in stocks and in bonds to sell," Sameer Samana said Tuesday on CNBC's "Futures Now." "If you look at the Fed, I'm just not sure they said anything all that different. We still don't expect a rate hike in 2016."
Samana believes that the central bank has, for the most part, "tried to avoid surprising the market," and it looks like investors also feel the same given what he has seen.
"If you look at how people are positioned, they are very sensitive to even small moves in the S&P toward the downside," he said. "[They are] widely positioned [long in the S&P], short on the VIX."
In other words, traders also see markets headed to the upside.
Overall, Samana sees the S&P 500 rising to as high as 2,290 by the year's end, meaning that the index would need to surge more than 7 percent from Wednesday's levels. This would take the S&P 500 to an all-time high by the end of 2016.
A sharp stock market pullback is imminent, according to David Rosenberg, chief economist and strategist at Gluskin Sheff.
On Friday, stocks were hammered by fears the Federal Reserve might hike rates sooner than expected, sending the S&P 500 index and the Dow Jones industrial average into a tailspin. According to Rosenberg, there's more trouble ahead.
"You have a perfect storm here if you get something like a Fed rate hike into the next several months," Rosenberg said Thursday on CNBC's "Futures Now. "The problem is that the market is not priced for it. I wouldn't be surprised that we see some kind of repeat as we had towards the end of last year into January-February, which was something close to a 12 percent correction."
Rosenberg, who has been named to the U.S. Institutional Investor All-America All Star Team several times in his career, doesn't think the shake-up can be avoided.
Oil is coming off its best session since early April, but if you're hoping it's signaling higher prices to come, one of Wall Street's most closely followed analysts warns investors should prepare to be bummed out.
"We're setting ourselves up for a triple disappointment," said Tom Kloza of Oil Price Information Service on CNBC's "Futures Now." Crude oil rallied more than 4 percent on Thursday. "The first disappointment comes next week when we get back lots of the crude oil that didn't arrive in the United States because of storms."
The energy analyst continued by noting that he expects nothing of significance to come from Friday's OPEC meeting in Paris. Additionally, Kloza anticipates that U.S. refiners will start to ratchet back production in late-September and October as crude demand wanes.
"It would be tough for me to make a case for crude oil going more than a few dollars a barrel higher than it is right now," explained Kloza. "We're still in that $42 to $50 trading range. When it gets near the lows, it's a buy."
Crude hit a new high of $47.69 on Thursday, its highest level in nearly two weeks back to when the commodity traded as high as $48.46. However, Kloza believes a sell-off could occur because of these potential pitfalls, as well as challenges that come with gaining accurate data on oil levels in the U.S.
"We put too much faith in EIA, particularly in the energy department's weekly numbers," noted Kloza in reference to the U.S. Energy Information Administration.
Kloza feels that the Administration's most recent findings, which indicate a massive drawdown being part of a discernible trend, were flawed due to the fact that the data was based off a holiday weekend compounded with a tropical storm.
"They're behind the curve on some of the information," complained Kloza in reference to the EIA, which is tasked with providing independent analysis of the nation's supply levels and prices for coal, gas and oil. "Their short-term energy report suggests lower North Sea and Russian production in 2017. We see higher. That is certainly a hurdle for the market to overcome down the road."
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