"... the upside risks to their forecasts for economic growth had increased as a result of prospects for more expansionary fiscal policies in coming years."
--Minutes of the Fed Meeting, Dec. 13-14, 2016
After a weak finish to 2016, many bears were looking for a poor start to 2017. They were caught by surprise by a gap-up open on Jan. 2 and then were squeezed higher on Wednesday as underinvested bulls chased entry points. Breadth was extremely strong, with biotechnology and oil-related stocks leading the charge.
Minutes of the last Fed meeting were released yesterday and had little impact on the market at first, but this morning the headlines are about Fed members' discussion of the impact of Trump fiscal policies. While Fed members believe Trump may have a positive impact on growth, they are skeptical about the market celebration and are not going to commit to a course of rate hikes until they have more data.
The noncommittal Fed is causing some pressure on the dollar, and that is being amplified by the biggest two-day rally on record for the Chinese yuan. China is working hard to prop up its currency in order to stop the flow of currency out of the country. By keeping the yuan strong it makes it unattractive to convert into other currencies.
It is currencies that are the main driving force this morning, but poor news in retail from Macy's (M) and Kohl's (KSS) (which is part of the Dividend Stock Advisor portfolio) is putting severe pressure on retail. Retail and restaurants have been struggling lately and are causing concern about the health of the consumer. Consumer sentiment has been quite good, but it isn't reflected in certain areas of the economy.
The bears, who always tend to be overly anticipatory, now are looking for a market top later this month. They theorize that the inauguration could be a "sell the news" event. Also we have earnings season coming up very quickly and that may temper some of the recent optimism when there are some cold, hard numbers to evaluate.
I am a bit concerned about how frothy the action was yesterday, but I'm finding that themes are working. Yesterday it was biotechnology with some things such as Achagoen (AKAO) , Sarepta Therapeutics (SRPT) and Global Blood Therapeutics (GBT) working well. Precious metals are a theme today that may work on currencies and there are some individual movers such as Nvidia (NVDA) that offer opportunistic trades.
The arguments for a market top aren't easy to see, but the opportunities to make money are still on the long side. Stay focused on price action and it will alert us when a turn is coming.
