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9/15/2014

Turbulent factors have arrived once again to a degree that should continue to add volatility to the US Equity markets.  These factors come primarily in the form of heightened jawboning by the Fed about an increased likelihood of raising rates by 2015.  The other is the heightened state of affairs in the Middle East, where recent events have increased resolve to create a coalition to neutralize the rise of ISIS.

Regarding the first factor (the increased hawkishness of the Fed)….the Market Doctor team finds this somewhat surprising given no major uptrend in economic activity.  The point to keep in mind is that even if Fed comments this week more clearly allude to a tightening in the future…the increase in rates would be minute and guarded (25 basis points for months at a time)….where the elasticity of the financial markets (e.g. stocks and longer dated bonds) should be negligible in this type of scenario.  Only with significant and sustained increases in rates (funds rate above 2%) would the impact on these markets become more extreme.  

Bottom line…bumpy for stocks over the near term and keep an eye on Fed minutes.  We find the recent sell off in precious metals to be over done in light of the higher rate scenario.

 

Stephan Kudyba (MBA, PhD)                      THE MARKET DOCTOR

 

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