Dow Lower, NASDAQ Higher; Which One Is Right?

There's been an interesting dynamic to the market over not just the past few days, but for the past six months, though it has become somewhat pronounced recently, and that is the divergence between the staid, centered 30 stocks that comprise the Dow Jones Industrial Average and the thousands which populate the NASDAQ composite exchange.

Whenever the Dow is up, it's almost certain that the NASDAQ will produce gains as well, but, when the Dow is lower, the NASDAQ is often higher, which means there are not only some major differences of opinion on which stocks to own, but also on the general nature and direction of the economy.

It appears that those invested primarily in Dow stocks are probably more conservative in their investment approach, primarily due to the collective pre-eminence of the Dow components and the fact that all stocks in the Dow pay dividends.

The NASDAQ has always been more of a speculator's paradise, where some of the best new technology, finance, energy, and medical stocks reside. It's also home to many smaller firms with limited histories and even more limited earnings records. In fact, many stocks listed on the NASDAQ don't have any earnings at all. Those are fledgling enterprises operating at a loss, a not unusual circumstance, but one of which many funds and investment advisors steer clear.

To say that stocks traded on the NASDAQ are possibly of lower quality long term and risk-sensitive would be an understatement. Consider the leading percentage gainers in today's big move to yet another all-time high.

Destination Maternity (DEST), Etsy (ETSY), Nightstar Therapeutics ADR (NITE), iQIYI ADR (IQ), and Dropbox (DBX) were the five biggest gainers.

Of those, maybe you've heard of Etsy and Dropbox. The others? Probably not. That's where the speculators are playing.

Not only is the NASDAQ home to new ideas and new companies, many of the big tech names are listed there. The top 20 most actives today included the likes of Intel, Cisco, Comcast, 21st Century Fox, Apple, Netflix, Microsoft, Facebook, and Zynga, a pretty good sampling of large, established entertainment and media companies.

Apparently, the NASDAQ is where the action is, as it has outperformed the Dow quite handily this year.

The Dow still carries the weight of the world, though, and it's been sluggish.

Which one is on the correct path? Absolutely, time will tell.

Dow Jones Industrial Average June Scorecard:

Date	Close	Gain/Loss	Cum. G/L
6/1/18	24,635.21	+219.37	+219.37
6/4/18	24,813.69	+178.48	+397.85
6/5/18	24,799.98	-13.71	+384.14
6/6/18	25,146.39	+346.41	+730.55
6/7/18	25,241.41	+95.02	+825.57
6/8/18	25,316.53	+75.12	+900.69
6/11/18	25,322.31	+5.78	+906.47
6/12/18	25,320.73	-1.58	+904.89
6/13/18	25,201.20	-119.53	+785.36
6/14/18	25,175.31	-25.89	+759.47

At the Close, Thursday, June 14, 2018:
Dow Jones Industrial Average: 25,175.31, -25.89 (-0.10%)
NASDAQ: 7,761.04, +65.34 (+0.85%)
S&P 500: 2,782.49, +6.86 (+0.25%)
NYSE Composite: 12,773.15, -12.30 (-0.10%)

Stocks Slide After FOMC Raises Federal Funds Rate

As was widely expected, the Federal Open Market Committee (FOMC) of the Federal Reserve issued a policy directive to increase the federal funds rate to 1.75-2.00%, marking the seventh rate hike in the current cycle, bringing interest rates further toward normalcy while inching the economy closer to recession.

As every recession one the past 40 years has at least partially been aided by Fed rate increases, this time is no different, as the FOMC issued the second 25 basis point increase of the year, with prospects of another 50 basis point increase through the end of the year.

Conjecture has been steady that the Fed would hike rates either three or four times in 2018. Today's hawkish tone indicated that four equal 25 basis point increases is the most likely outcome, with 25 basis point hikes in September and December.

Stocks were wary going into the June meeting, which concluded today at 2:00 pm EDT and was followed by a press briefing from Fed Chairman Jay Powell, who did little to allay fears that the Fed would continue its reckless path in the face of what can best be called tepid economic data.

After the first rate hike in February, stocks nosedived, and they did a prelude to an encore performance after the announcement, though the losses were contained and ganged into the final few minutes of trading, the Dow suffering the biggest percentage decline and a nearly 120-point selloff.

The bond market took the news in stride, with the 10-year note barely budging, continuing to nose around the 3.00% yield level. Silver was the unanimous winner of the day, as gold's little sister initially fell, but then shot up 25 cents, ending the day one $17.00 the ounce for the first time since mid-April.

What lies ahead for markets the remainder of the week is an assessment of inflation (both CPI and PPI were up sharply in the most recent disclosures) and the overall economy. With trade wars looming larger than ever and productivity stalled, there exists a very good chance that a recession could be in the cards within the next six to 12 months, while scores of analysts weigh in on the dubious nature of the government's official gauges of inflation, unemployment and GDP.

Thursday's trade promises to be choppy, as sentiment is leaning toward being equally split between a bullish and bearish stance on stocks. Valuations maintain their loftiness, but money has to flow somewhere, and there are still plenty of fund managers looking for further gains this year.

Dow Jones Industrial Average June Scorecard:

Date	Close	Gain/Loss	Cum. G/L
6/1/18	24,635.21	+219.37	+219.37
6/4/18	24,813.69	+178.48	+397.85
6/5/18	24,799.98	-13.71	+384.14
6/6/18	25,146.39	+346.41	+730.55
6/7/18	25,241.41	+95.02	+825.57
6/8/18	25,316.53	+75.12	+900.69
6/11/18	25,322.31	+5.78	+906.47
6/12/18	25,320.73	-1.58	+904.89
6/13/18	25,201.20	-119.53	+785.36

At the Close, Wednesday, June 13, 2018:
Dow Jones Industrial Average: 25,201.20, -119.53 (-0.47%)
NASDAQ: 7,695.70, -8.09 (-0.11%)
S&P 500: 2,775.63, -11.22 (-0.40%)
NYSE Composite: 12,785.75, -58.96 (-0.46%)

FOMC On Deck: Stock Rally Should End at 2:00 pm EDT

Void of volatility the past two days, US and global stock markets are about to get shock treatment courtesy of the Federal Reserve's FOMC, which will almost certainly increase the federal funds rate by 25 basis points, to 1.75-2.00%, the highest rate in well over a decade.

While the expected rate hike is well-anticipated, priced in (according to the usual suspect sources), and measured (one 25 BP hike per quarter is the new normal), markets will still see the rising rate environment for what it is: an economy killer, attracting all money to US treasuries and out of competing negative or near-zero-interest-paying bills, notes and bonds in other countries.

When the FOMC announces its policy decision at 2:00 pm EDT, the world will change in some small but all bad ways. Credit card payers will see their required monthly debt installments rise, any interest-rate sensitive debt obligations (most of it) will become more expensive, and, perhaps most important of all, stock buybacks will no longer appear to be the bargain they once were, when companies could borrow at extremely low interest rates to repurchase their own stock, rather than invest in capital equipment and labor.

The elephant in the room is the buyback scheme, one which has boosted stock prices to dizzying levels, based largely on lowered expectations via reducing the number of shares outstanding. Companies which had chosen to engage in the dumbest money move in recent history will still be clueless about how to expand their existing businesses. They will not invest in their own operations. They will not increase wages nor hire more human capital. They will continue their cowardly retreat into self-interested stock incentive bonuses for key executives, as if those people are the only ones in the organization who matter.

Sadly, US corporations are badly managed and have been for quite some time. The rot within the boardrooms and executive suites began many decades ago and has only accelerated though the first two decades of the new century, long after the "Greed is Good" Gordon Gecko exclamation point from the 90s.

Today, the fictional Mr. Gecko would be ridiculed for his naivety, modesty, and restraint by the avaricious purveyors of corporate theft currently occupying the positions of CEO and CFO at many major corporations traded globally.

As corporate executives continue to be glorified as champions of free enterprise and business leaders, elevated to the level of gods and goddesses, the corruption that has engulfed the entire political and economic spectrum will come to full bloom, the excesses and poor decisions exacerbated by tightening finial conditions. Just when everything becomes more dear and out of reach to the ordinaries, the wealthy and connected will resort to outright, in-your-face larceny, justified by an entitled mindset.

Once it begins to get worse, the levels of lawlessness, greed, immorality, and corruption will become unbearable, but, as it was in 2008 and 2009, none of the most obvious criminals will go to jail. Few will even be indicted.

When it's obvious that stocks are going to continue devaluing - a condition that's probably well-understood already by the elite - the rats will jump ship en masse along with their ill-gotten gains.

The short-term rally that began on June 1 may not end immediately after the FOMC decision, but it almost certainly will end shortly thereafter. The NASDAQ made a new all-time high on Tuesday while the Dow languished with a minor loss, ending a four-day win streak as it reached the upper band of its recent trend line.

Now comes the losing.

Next comes the lying.

Dow Jones Industrial Average June Scorecard:

Date	Close	Gain/Loss	Cum. G/L
6/1/18	24,635.21	+219.37	+219.37
6/4/18	24,813.69	+178.48	+397.85
6/5/18	24,799.98	-13.71	+384.14
6/6/18	25,146.39	+346.41	+730.55
6/7/18	25,241.41	+95.02	+825.57
6/8/18	25,316.53	+75.12	+900.69
6/11/18	25,322.31	+5.78	+906.47
6/12/18	25,320.73	-1.58	+904.89

At the Close, Tuesday, June 12, 2018:
Dow Jones Industrial Average: 25,320.73, -1.58 (-0.01%)
NASDAQ: 7,703.79, +43.87 (+0.57%)
S&P 500: 2,786.85, +4.85 (+0.17%)
NYSE Composite: 12,844.72, -12.24 (-0.10%)

Stocks Lose Luster In Late Trading

Getting the usual Monday morning boost, stocks experienced widespread gains throughout the day but faded badly into the close, with the Dow suffering the worst, dropping 80 points off its early afternoon high at 25,402.83.

The blue chips ended the day with a gain of just less than six points, the smallest percentage higher (0.02%) of the major indices.

Monday's subdued trading preceded the signing of an historic agreement to denuclearize North Korea, signed Tuesday morning, Singapore time, by President Trump and North Korean leader, Kim Jong-un. The late-day selloff might have been a precursor to more meaningful action to come Tuesday and Wednesday as the Federal Reserve plans a widely-anticipated increase to the federal funds rate, also known as the overnight or interbank rate, the price banks pay to loan funds to each other or to and from the Federal Reserve.

With the FOMC set to open the rate policy meeting on Tuesday and conclude Wednesday afternoon, treasury bonds displayed relative quiet, though yields rose moderately across the treasury spectrum.

Most worrying to bond traders and economists is the continuing flattening of the yield curve, as it approaches possible inversion, a condition that has presaged every recession since 1955.

The 2-10-year spread reached its lowest point in the current cycle, dropping to 43 basis points. The 5-30 spread stood at a mere 30 basis points (0.30%) at the close of trading Monday.

Further rate hikes by the Fed treated to choke off investment and send shorter maturities higher while longer ones stand firm. Both the 5-year note and 30-year bond have risen in yield by six basis points since June 1, though the stability is not expected to last long past this week's FOMC meeting.

As far as trading is concerned, there is likely to be a period of quietude Tuesday and Wednesday morning, leading up to the policy announcement at 2:00 pm EDT.

Dow Jones Industrial Average June Scorecard:

Date	Close	Gain/Loss	Cum. G/L
6/1/18	24,635.21	+219.37	+219.37
6/4/18	24,813.69	+178.48	+397.85
6/5/18	24,799.98	-13.71	+384.14
6/6/18	25,146.39	+346.41	+730.55
6/7/18	25,241.41	+95.02	+825.57
6/8/18	25,316.53	+75.12	+900.69
6/11/18	25,322.31	+5.78	+906.47

At the Close, Monday, June 11, 2018:
Dow Jones Industrial Average: 25,322.31, +5.78 (+0.02%)
NASDAQ: 7,659.93, +14.41 (+0.19%)
S&P 500: 2,782.00, +2.97 (+0.11%)
NYSE Composite: 12,856.96, +24.89 (+0.19%)

Dow Soars Past Rivals; Upcoming: Trump Talks, Fed Rate Decision (Weekend Wrap & Monday Briefing)

Ripping past rival indices, the Dow Jones Industrial Average scored its biggest point increase since January, adding 681 points while boosting its June increase to 900 points, also the best monthly gain since January.

Whether the bullish sentiment will prevail through the remaining 15 trading days of June may be addressed in the week ahead, one which will witness President Trump's negotiating skills at work when he meets with North Korea's Kim Jong-un in Singapore, an epic event that looks to end nearly seven decades of armed confrontation on the Korean peninsula.

Since taking the oath of office in January, 2016, Trump has made North Korea a significant priority, alternating between insulting tweets (calling Jong-un "Little Rocket Boy," for instance), displays of military force, and back-room preliminary negotiations through surrogates from China, Japan, South Korea and US diplomats.

Official negotiations begin Tuesday, 9:00 am Singapore time, which translates nicely to 9:00 pm Eastern Daylight Time, assuring that late-night political junkies will have their plates full for the better part of the week.

Also on the agenda for the upcoming week is the Tuesday-Wednesday FOMC policy rate meeting, in which the Federal Reserve will likely hike the federal funds rate another 25 basis points, an action which is likely to have great impact on stocks as well as bonds. After hiking rates earlier this year, Fed officials have gone to great lengths to keep their rate increase policy in front of investors and the general public, with various officials parroting the themes that the economy is strong and that now is the right time to increase lending rates.

As opposed to normal Fed operations being somewhat behind the curve, the current roster seeks to appear out in front of the economic realities, though critics maintain that all the Fed is doing is preparing for a looming recession, arming themselves with enough interest rate ammunition to staunch an eventual downturn.

If the Fed does as expected it will hike rates from 0.00 to 0.25 to 1.75% to 2%. This will be the second rate hike this year and the seventh move since the start of the tightening cycle which began in December 2015.

While the small increases have been well-spaced, it's assumed that the Fed will continue to increase rates every three months, meaning that they will hike again in September and once more in December.

The trouble with such an optimistic outlook is that an increase in their base rate to 2.25-2.50 by year-end would put increased pressure on the stock market, as treasury yields would likely rise to levels above and beyond those of many dividend-paying stocks, without the associated risk.

Another anticipated action this coming week is the response from G7 members following their weekend meeting in which President Trump insulted the leaders of other nations in person and via Twitter. Trump's claim that G7 countries like France, Canada, Germany, and Italy have long been taking advantage of the US via unfair trade practices. The US president has been slapping tariffs on friends and foes alike and the backlash in tit-for-tat tariffs has already been forwarded by Canada, with the EU nations likely to impose their own retaliatory trade taxes on US goods.

While the trade wars have been building, the financial media has routinely blamed the tension for declines in the stock market. However, as trade talk went ballistic in the past week, stocks continued their ascent without interruption, proving once again that snap analysis of stock market moves are nothing other than pure fakery by an inept, disingenuous media elite. Trading decisions are largely not the result of current events, but rather, are outward-looking, with longer-term event horizons than a few days or weeks.

The effects of trade interruptions, tariffs and retaliation are unlikely to be felt in any meaningful way for many months, making the premature effusions of guilt by presidential association by the financial and mainstream press a rather large canard.

So, the first full week of trading in June went spectacularly for stocks, with the NASDAQ breaking to new all-time highs on Wednesday, before profit-taking took it back down on Thursday. Friday's 10-point gain on the NAZ left it roughly 50 points off the new closing high.

As for the benchmark Dow Industrials, they are cumulatively 1300 points behind the January record high of 26,616.71. There is a great deal of ground to be made up in any effort to convince investors that the bull market will continue, while those of the bearish camp point to the range-bound cycle of the past three months following the cascading February fall.

June may turn out to be a watershed month for stock pickers, as tech stocks have regained much of their luster while financials have languished. Due to the somewhat incestuous nature of Wall Street trading, all boats may rise or fall in coming days as the second quarter draws to a close and fed managers square their books in anticipation of second quarter reports.

While the prior week may have been a banner for bulls, the week ahead promises to be full of surprises, intrigue and potential pitfalls for investors.

Dow Jones Industrial Average June Scorecard:

Date	Close	Gain/Loss	Cum. G/L
6/1/18	24,635.21	+219.37	+219.37
6/4/18	24,813.69	+178.48	+397.85
6/5/18	24,799.98	-13.71	+384.14
6/6/18	25,146.39	+346.41	+730.55
6/7/18	25,241.41	+95.02	+825.57
6/8/18	25,316.53	+75.12	+900.69

At the Close, Friday, June 8, 2018:
Dow Jones Industrial Average: 25,316.53, +75.12 (+0.30%)
NASDAQ: 7,645.51, +10.44 (+0.14%)
S&P 500: 2,779.03, +8.66 (+0.31%)
NYSE Composite: 12,832.07, +43.56 (+0.34%)

For the Week:
Dow: +681.22 (+2.77%)
NASDAQ: +91.18 (+1.21%)
S&P 500: +44.41 (1.62%)
NYSE Composite: +211.24 (+1.67%)