How Market Psychology and The Reaction To Terrorism Dovetail With The Fed Minutes

Nature abhors a vacuum. People do, too, and generally seek to fill vacuums. With the world drifting under recent terroristic attacks and the threat of more, plus news of beheadings, torture and general mayhem wherever ISIS spreads its grimy wings, no wonder that investors and traders seem relieved and even happy about the particulars of the minutes of the last Fed meeting.

The minutes point fairly definitively toward a December rate hike. But, but, but…

After all the wailing and gnashing of teeth done by the big money people in the big financial centers around the globe, most analysts – or at least people with keen analytical minds – are saying out loud and to themselves that a rise in interest rates won’t hurt much, especially given how strong the dollar has already grown.

"To me, the minutes were unusually clear," said Jeffery Elswick, director of fixed income at Frost Investment Advisors. Elswick was also quick t point out that volatility will most likely increase as we get nearer to the next meeting on December 15.

The equities certainly seemed to lap up the news of stability from the Fed. But there were other factors helping stocks today.

Crude oil was up smartly, especially Brent North Sea, which rose 1.80%.

Apple got some great forecast news that drove it’s share price eve higher. Apple's rose about 2.5% (around $3.35 per share) after Goldman released a note putting Apple on its “conviction buy list,” predicting that the company's shares will rise 43 percent in the next 12 months.

Goldman was also up dramatically on the day – $3.20. Both blue chips helped to propel  all indexes higher. Biotech had a big hand in pushing the NASDAQ up

Mark Yusko, chief executive and CIO of Morgan Creek Capital Management, said in a phone interview that he believes Apple's stock price could double, most likely in the next 18 to 24 months. Yusko cited a strong product cycle and the company's ability to barge in and capture market share in China.

Gold was unchanged, which does relieve some technical pressure and may be an early sign gold will move off its recent lows. Gold bulls would like that but the dollar’s strength means everything for the yellow precious metal right now. Silver is essentially unchanged on the day. Platinum and palladium fell fairly drastically once more.

The dollar flitted here and there today, and not for any single reason. We think the buck is waiting to begin another leg up. The Fed minutes will rule the waves from here until the 15^th of December. Only a few months ago, the likelihood of a Fed hike was down around the 40% level.

Futures traders have placed a 72% chance rates will rise at the December meeting, according to the CME Group's FedWatch on Wednesday.

As we warned before, though, it’s not the first hike we have to keep a close eye on. It’s how many hikes and how often hikes come that needs scrutiny.

Wishing you as always, good trading,