Chris Ciovacco: With the primary focus on the Fed, many market participants may have missed President Obama’s repeated calls for avoiding another round of asset bubbles. When the President’s remarks are paired with the Fed’s tapering script, it paints a potentially concerning picture for the stock market. From Bloomberg:
President Barack Obama, who took office amid the collapse of the last financial bubble, wants to make sure his economic recovery doesn’t generate the next one. Obama this month spoke four times in five days of the need to avoid what he called “artificial bubbles,” even in an economy that’s growing at just a 1.7 percent rate and where employment and factory usage remain below pre-recession highs. “We have to turn the page on the bubble-and-bust mentality that created this mess,” he said in his Aug. 10 weekly radio address.
Market’s Profile Is Deteriorating
Chart reading or technical analysis helps us monitor the market’s reaction to fundamental news. For example, this week’s video outlines significant deterioration in the market’s technical health, which tells us the “bubble avoidance” and “tapering” campaigns are not being offset by confidence in the global economy.
When the President speaks about “artificial bubbles” four times in five days, it is noteworthy. If you asked an experienced Fed-watcher who has a higher probability of creating asset bubbles, Janet Yellen or Larry Summers, the response would most likely be Janet Yellen. According to Reuters, Larry Summers could shake the stock market with a more aggressive campaign to increase interest rates:
Barring another financial crisis or slide back into recession, the next head of the Federal Reserve is likely to oversee a gradual normalization of monetary policy. But that pace, including the first interest rate hike, might be somewhat quicker under former Treasury Secretary Lawrence Summers than under current Fed Vice Chair Janet Yellen, the two top contenders for the job, if their own comments are any guide.
Broader Market Wants More Stimulus
It is common knowledge the Fed is considering tapering their money printing and bond purchase program. If the stock market was unconcerned about the Fed’s desire to begin stepping away, we would expect to see a healthy weekly trend. That is not what we have.