It’s all over but the dissection of the Fed statement, due later today, which will follow with a Janet Yellen press conference after the U.S. markets get word of whether the Fed did or did not eliminate the “considerable time” bit from its statement that saw markets go into a tizzy all of Tuesday. At this point the market believes that phrase now may *not* be eliminated, which marks the second reversal in about a week on this point. No matter what, somebody is going to be caught leaning in the wrong direction, but if the latest intelligence is that the Fed’s statement won’t change materially until the October meeting, then the freshest bets are probably in the direction of those betting on that much. So if the statement does cut out that language or modifies it in any way, you could see a selloff in equities, the dollar and bonds.
Eventually, lack of volatility, rock-bottom rates and this accommodating monetary policy will realize the build-up of excesses that causes some kind of market crack that devastates people – particularly in areas where many do not expect it. But it won’t be today, and investors should continue to ride that so-called Wall of Worry through the 2,000 mark on the S&P 500 before long.
Sometimes the biggest pain trade is not being in the market at all, and that’s certainly the case in 2014. We’re in something of a Goldilocks environment when it comes to major markets: Bank of America-Merrill Lynch laid this out pretty well in a note yesterday, noting that global equities, US stocks, emerging markets, government bonds, gold, high yield bonds and investment grade corporate are all up between 3.9 and 5.2 percent so far this year.
There are a million cliches people lean on to explain some aspect of the market that’s otherwise baffling, and the key one this week – the cliche du semaine – is something along the lines of, “You don’t want to short a dull market.”
There seems to be a battle in the market between those who believe stocks are in, or are nearly in, a bubble (that should remind investors of 2007, 2000, or another time when the market was significantly overvalued), and those who believe all is well, things may be a bit frothy but hang in there – that kind of thing.