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Much Ado About 25 Basis Points

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Tuesday, September 13, 2016

Futures are swinging down again this morning, following a big upward swoop in regular trading Monday that made up a good portion of the big losses in the stock market Friday. If this tells you one thing, the VIX (volatility index) spiking upward shows us that short-term market traders are all back from summer vacation.

Actually, all of this volatility is the result of a cloudy view ahead of next week’s Fed meeting. Up until a couple weeks ago it was considered a slam-dunk that no increases would be forthcoming until after November’s General Election at the earliest. But the growing chorus of Fed presidents acknowledging the need for a quarter-point rate rise has thrown the market into a tizzy.

All this over 25 basis points, which would bring the rate to 0.5%! Yet this is our current reality — money has been really cheap for a really long time, and market participants are quite unused to making an adjustment toward tightening. This, despite projections at the beginning of the year were for us to have had at least one quarter-point hike by this time.

Fed presidents will now remain mum ahead of next week’s meeting, and this is building a new near-term wall of worry. With Dow futures at -140 points, Nasdaq at -29 and the S&P 500 at -17, we expect a bumpy ride entering the opening bell today. Precious metals — gold, silver and copper — are all up in the pre-market. Oil reads at Brent and WTI are moderately down again, and the 10-year remains just a notch or two below 1.7%, higher than it’s been of late.

Treasury Secretary Jack Lew is currently being interviewed at the Delivering Alpha conference (sponsored by Institutional Investor and the CNBC business channel), and has taken on the Wells Fargo (WFC - Free Report) fraud scandal, particularly about the importance of retaining the integrity of the U.S. financial system, including enforceable finance regulations, saying it’s “dangerous” to do without such measures, and that “no one is too big to jail.”

On the other hand, Lew said the EU taking action against Apple (AAPL - Free Report) to obtain $14.5 billion in back taxes is an inappropriate move. While he agrees with the EU that tax havens shouldn’t exist in this manner, he suggests the EU’s retroactive tax is out of the framework of reasonable policy.

Mark Vickery
Senior Editor


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