…and the Markets sell-off is nowhere to be seen. It reminds me of the Farmers in India who come to the fields everyday, look up at the sky hoping it will rain today and go home disappointed. Many were hoping for the September swoon but instead this dreaded month ended up as the best in the last 5 years! Now what? Where do we go from here?
The story is still the same. Funds are flowing into US at a feverish pitch and most of it is ending up in the Stock markets here because US economy is very strong, This was reinforced by the the Fed when they raised the interest rates by 25 basis points. Their language is getting hawkish too. They removed the word “accommodative” from their policy statement and on track to raise again in December as if saying “but wait there is more…”! US dollar is getting stronger by the day and overseas jitters (like ILFS defaults in India, balloning Italy debt etc) boosts the demand for USD even more.
Market update: Almost all sectors of markets did well except Financials. One would think that the Banks should flourish in a rising rate environment right? Yeah, but remember that they have to borrow at the short term interest rates to make long term loans. Short term rates are rising at a much faster rate than the long term endangering the flattening of the yield curve. This hurts the bank and they have to manage their business in a more efficient way. Earnings are on deck and it will be interesting to see the Quarterly reports of these Banks in the next couple of weeks. Sector watch: XLF
What’s next? Historically the last quarter of the year is strong but there will be some opportunities to buy on dip like Payroll numbers next Friday, Midterm election anxiety etc. But beware that the dips might be shallow as lot of cash loaded Money Managers who are sitting on the sidelines will dive in to chase their year-end performance. Have a great weekend and looking forward to the last leg of the year.