FOMC Meeting Minutes Reveals Discussion For Reducing QE

Updated on

In his Daily Market Notes report to investors, while commenting on FOMC meeting, Louis Navellier wrote:

Get The Full Henry Singleton Series in PDF

Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q1 2021 hedge fund letters, conferences and more

The Labor Department reported on Thursday that new weekly unemployment claims declined to 444,000, compared to a revised 478,000 in the previous week.  The good news weekly unemployment claims are now at a pandemic low.  The bad news is that continuing weekly unemployment claims actually rose to 3.751 million, compared to 3.655 million in the previous week.  Economists were expecting weekly and continuing unemployment claims at 450,000 and 3.62 million, so weekly claims were slight better than expectations, while continuing claims were disappointing.  Interestingly, the Fed’s primary focus remains on unemployment, so I expect that higher continuing unemployment claims may cause the Fed to remain accommodative.  I should add that 21 states have opted out of the $300 supplement unemployment benefit, due to growing labor shortages, especially for service workers, so continuing unemployment claims should drop as unemployment benefits expire.

FOMC Meeting Minutes

Speaking of the Fed, the Atlanta Fed reduced its second quarter GDP estimate to an annual pace of 10.1%, down from 10.5% previously estimated after the weaker than expected report on April new housing starts.  The minutes from the latest Federal Open Market Committee (FOMC) meeting were released on Wednesday and revealed that FOMC members were discussing reducing quantitative easing where the fed buys Treasuries and other debt.  This means that future FOMC statements may include words like “taper” and “reduce,” which would likely cause the yield curve to tilt a bit higher and for the 10-year Treasury bond to approach the 2% level.  However, for now, the Fed’s quantitative easing continues, so Treasury yields remain relatively stable.

Nasdaq trading felt very mechanical last Thursday and Friday as buy programs pushed the major averages higher into options expiration. Every Friday is options expiration with weekly options, and I have noticed that the closing day tends to see countertrend moves. If we have been down for a few days before Friday, we tend to rally on that day. Or, if we are down sharply in the morning, we tend to rally into Friday afternoons. Those are not hard and fast rules, just some anecdotal evidence from the trenches. Needless to say, Fridays tend to be weirder for trading because computers are a bigger part of the trading environment.

In a strong downtrend, an index tends to find resistance at its 10-day moving average, which we reached Friday. Trading above the 10-DMA a few days this week would indicate the downtrend is not as strong.

Personally, I think this is an intermediate-term correction, and we will finally see a tag of the 200-day moving average on the Nasdaq Composite in this decline. This is driven by rising inflation and rising long-term interest rates and is fairly normal. Stocks should have a positive finish to the year because the pandemic is winding down and the normalizing of the economy is underway, but overall volatility should also be high because of rising inflation and rising long-term interest rates.