Are We In the Eye of a 'Sell the Rumor, Buy the News' Storm?

Wall Street speculation ahead of next week's all-important September Fed meeting has hit fever pitch

Sep 8, 2015 at 9:35 AM
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    Why did the market implode on Friday? Here's one take:

    "Selling on Wall Street accelerated on Friday afternoon sending the Dow industrials down more than 300 points after the monthly jobs report for August was viewed as solid enough for the Federal Reserve to consider an interest-rate hike in September." 

    I don't mean to pick on MarketWatch because this was literally the take everywhere but… NO! 

    Short answer: "Who really knows, and it's not something we should spend a lot of time focusing on anyway, as it leads to false senses of correlations."

    Long answer is... OK, unlike most times, this one is pretty objective. Markets were getting hammered ahead of the 8:30 AM ET jobs number. Here was my opinion before the number:

    A good jobs number is bad, a bad jobs number is bad, the mere fact we release a jobs number is bad #NFPGuesses

    I stand by my call. There was literally nothing that the BLS could say that would have magically reversed the market. 

    I have that opinion virtually every time there's an Orange Crop Report sort of moment in the markets, like jobs, Beige Books, Fed meetings, et. al. They almost all can have diametrically opposite interpretations. 

    A snapshot of good economic news in and of itself is bullish if Mr. Market is rooting for a recovery, and is bearish if Mr. Market is worried about growth. But if Mr. Market's in a foul mood, it's going to take the glass-half-empty view of it either way. 

    And Mr. Market is in a generally foul mood most days lately… Friday specifically. Good jobs number? Fed's going to Raise Rates, Sell Everything! Bad Jobs number? The economy is in Free Fall, Sell Everything! Innocuous Number? I have no idea, Sell Everything!

    Obviously that won't last forever. Maybe by the next report it will be the exact opposite. We'll know the Fed Decision by then, if nothing else. 

    Which brings me to my main point: The Fed (Maybe) Rate Hike. 

    The media obsession with All Things Fed has just about reached a crescendo, and yet it's only going to start getting worse now that the central bank's policy-setting meeting is only a week away. And it's really kind of a waste of time, because their actual action isn't going to affect any of us much at all. It's the reaction to the action that will have potentially large impact, and it's far, far, far from a given how we react. 

    I could make a strong case we make a semi-important bottom if the Fed hikes. Perhaps we're mired in a major "Sell the rumor, buy the news" moment. I could also make a strong case that no rate hike is very bearish. We'll keep anticipating it and now push that off another six weeks. We'll say the Fed must see a terribly weakening economy, be extra worried about China -- whatever.

    But really, I don't know exactly how the market will react, nor really does anyone. It's going to just depend on that unique moment in time and the market's condition heading into it. I won't have any particular game plan in mind until it gets much closer. 

    Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.


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