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December 20, 2005

The effect of the Fed on capital markets this week, Tues., Dec. 20, 2005, 10:25 AM

A week ago, the Fed raised its discount rate by 25 basis points, its 13th straight increase. Nothing new there except that the bond yield curve flattened a little more. The policy decision was linked to the dropping of the word "accommodative" which pundits focused on. Generally speaking there was much enthusiasm that stock prices would rally further on this so-called "news" that the Fed would stop tightening.

The results, however, have been anything but bullish for equities. And yes, bond yields dropped, with prices sent soaring the morning after the Fed announcement. But look what's happened to yields/prices today.

This morning the 30-year U.S. Treasury Bond price has fallen a lot. The yield is back to where it opened on Wed am. So just like stocks, the bonds are no liberators of capital markets here.


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My feeling is that, for very large accounts, the bond market is the better place to be at this point. I noted a Bloomberg interview with the spokesperson for HSBC this morning who called it otherwise. So who are you going to believe? HSBC or Bill Cara? LOL

In terms of U.S. equities, there is clear leadership on the downside by Nasdaq and Russell small cap stocks. The Dow 30 is being held up by a relatively few gainers. Even at that the Dow is down a little on the day.

Posted by Posted by Bill Cara on December 20, 2005 10:14:57 AM | Category: Cara Today in the Market

Discourse

A/D line for the S&P 500 has been pointing downward for the duration of this "rally." And the new highs vs. new lows ratio has also been flat. Not a good sign that this rally has a base under it.

Posted by: smess [TypeKey Profile Page] at December 20, 2005 11:59 AM [link]