Indigestion

US Stocks continued to suffer indigestion as investors pondered a number of familiar concerns. The S&P 500 eked out a gain for the week of .53% to close at 2139.16 while the Nasdaq Composite saw a more robust gain of 2.31% -- the gain was largely a result of Apple’s share price while the Russell 2000 rose a paltry .46%.

Last week’s economic data continued to show a soft economy which would seem to argue that a rate hike will not come any time soon. More disturbing for investors were the latest poll reports showing the gap narrowing between Clinton and Trump. Investors expect no new surprises with a Clinton Presidency however a Trump win would open Pandora’s box of uncertainty which weighed on stocks. While fiscal spending is likely to climb under either scenario, a Trump win will likely result in a larger spending boost thereby resulting in a higher deficit than a Clinton White House.

The upcoming Federal Reserve Open Market Committee (FOMC) meeting this Tuesday and Wednesday will be closely watched by investors to see for any indications of rate increases before year-end. Interestingly, our friends at Convergex observed last week that 80% of total annual excess US Stock Returns from 1994 to 2011 came in the 24 hours or so before an FOMC Meeting. This is according to a paper published by The Journal of Finance by the NY Fed in 2013.

Bank of Japan meets Wednesday and investors will be looking there as well for any change in accommodation. The fact that Central Banks are guiding markets seems to turn upside down the traditional free markets’ notion of Adam Smith’s invisible hand moving markets to that of the visible stick of Central Banks directing markets.

To play the FOMC trade, see broad based ETFs, such as DIA, IWY, SCHA and VTI which score high on our weekly Quant Movers List - as well as interest rate sensitive ETFs like KIE, KRE and IYG from our Select List. These are potentially good vehicles to execute one’s view on any outcome of these meetings or the old adage of "buy on the rumor and sell on the news."

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