What’s next for stocks? The good news for the Fed statement is that it was exactly what the moderate camp was expecting: ratcheting up concerns on inflation, ratcheting down concerns on the weak economy. It was a nuanced statement, and the stock market showed very little reaction.
Unfortunately, a little more chest-beating on inflation would have helped the bulls. It was SO NUANCED that the dollar has drifted lower, and oil is unchanged. Not good.
Stock bulls want the Fed to protect the dollar, which will push oil lower and will help the airlines and the autos and the FedEx's of the world.
Now we turn to the main issue: where's the catalyst to own stocks into the summer? The lack of strong arguments for owning stocks is the biggest problem the bulls have.
The biggest hope for the bulls is a notable crack in oil (a sustained drop below $120 or so). After that, the notably oversold conditions (which could last a long time), and the lopsided bearishness of the Street should enable some kind of short-term bounce.
For the next few days, going into the end of the quarter, the hope is to stage a modest oversold rally. We've done that from yesterday's lows, but it's pretty, uh, modest: 1 percent off the lows yesterday, and basically flat for the quarter.
Longer-term, we do have the ECB on July 3rd, but they have already telegraphed their hawkish intentions. Traders keep telling me there are still a lot of chips on the table betting on a second half recovery. I would agree that earnings and guidance are the main story after today's Fed statement, but what I see is estimates coming down, even though comparisons for the third and fourth quarter are a lot easier due to the declines of last year.
Ah, the Bulls say, the Street is over-reacting because everyone is SO DAMN BEARISH. They will be cutting earnings, true, but they will not turn out as bad as everyone thinks, and we will rally. So say the bulls. But we are in a hall of mirrors now.
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