Mid-Month & MACD Seasonal Buy Signal Watch Updates: Fed Stands Pat By: Christopher Mistal | September 17, 2015 | Email | Print

Finally we have our answer. The September FOMC meeting has come and gone and interest rates remain unchanged, exactly the same place they have been since the Fed took emergency action at the start of the financial crisis in December 2008, 0 to 0.25%. Primary justifications for not starting to hike rates were tepid inflation (and inflation expectations) along with mounting pressures to growth from outside the U.S. These were the precise reasons why we expected the Fed would take another timeout at this meeting.

 

Today’s Fed meeting was also accompanied by the release of a Summary of Economic Projections. Some notable and perhaps worrisome revisions were made to U.S growth and inflation forecasts when compared to June’s projections. Growth projections for 2016 and 2017 were modestly lowered, 2018’s estimate matched the longer run estimate, but both were lower than 2015, 2016 or 2017. A low 2% U.S. GDP forecast for essentially the foreseeable future is nothing to be excited about. Inflation estimates also slipped in 2016 and 2017 while the Fed’s 2% target does not seem likely until 2018 now.

 

As a result of international developments, tepid growth and inflation estimates the projected path of a higher Fed funds rate has also moved out on the timeline. Four members now believe the appropriate timing for policy tightening is in 2016 and beyond.

 

At this juncture, the market’s reaction to the announcement has been mixed. Initially negative, then positive and negative to end the trading day. Arguably, any positive economic benefits of near-zero rates have likely been exhausted after nearly seven years. New uncertainty has been presented to the markets by way of lower growth and inflation projections while the uncertainty of when interest rates may finally begin to move higher still remains. Until this uncertainty diminishes a choppy, volatile market is expected to remain. A rate increase next month seems unlikely. Even a December move may be premature. Rates could stay unchanged until the first quarter of 2016 given the most recent trends in some economic data.

 

 

Our Seasonal MACD Buy signal cannot trigger until October 1 or later. Presently, the MACD Buy indicator (MACD (C,8,17,F)) in the following charts of DJIA, S&P 500 and NASDAQ is positive and has been so since the market partially bounced back from it precipitous mid-August decline. Stochastic and relative strength indicators have also been improving since the start of September however, the market’s climb higher has slowed and could eventually falter as it digests the latest developments from the Fed and abroad. 

 

 

Given the recent flow of economic data and bearish week-after-options-expiration-week seasonality another wave of market weakness is anticipated sometime over the next several weeks. Should this weakness manifest it will likely reset technical indicators and offer a timely start to the Best Six/Eight Months. When MACD indicators do signal a buy for DJIA, S&P 500 and NASDAQ on or after October 1, we will issue our Seasonal MACD Buy Alert. Until that time we will continue to maintain a defensive posture in our ETF and Stock portfolios.