US markets looked set for another day of heavy losses before a journalist, of all people, came in and saved the day. The S&P and Dow were able to climb back into narrowly positive territory, both posting gains of 0.28%, while the Nasdaq finished 0.22% in the red.
The catalyst for the afternoon bounce was the release of an article by prominent Fed commentator Jon Hilsenrath of the Wall Street Journal. In the article, Hilsenrath stated his opinion that the market had somewhat mis-read the FOMC's intentions in Wednesday's rate decision. While improving economic conditions have the Fed looking toward a reduction of the pace of purchase in its QE program, any change in conditions could prompt them to maintain the same volume of asset purchases or even increase them. Basically the Fed maintained the stance it has taken all along: we stand ready to support the economy if it can't gather steam on its own. The market seemed to perceive Wednesday's announcement very differently.
While stocks were able to bounce, bonds were not. The 20+ Year Bond ETF (TLT) fell another 1.71% on the day as the head and shoulders pattern looks more valid by the day. Could we be seeing the beginning of the end for the historic 30-year bull market in bonds? The media ran with that narrative this week, but I would caution chasing a trade when herd consensus gets so skewed in one direction. Especially if the economic recovery falters and the Fed sticks around a little longer, we could get a swift snap back in bonds.
Gold (GLD) was able to find its footing today, but I remain bearish on the commodity ETF. If the Fed does indeed move forward with QE tapering later this year, Gold will be robbed of its greatest single price driver. The only way I see GLD bouncing from here is if we get a scenario like I mentioned before with bonds: the recovery falters and the Fed backtracks.
Economic data over the next few months became exponentially more important when the Fed issued its rosier outlook for the economy and moved closer to QE tapering in Wednesday's announcement. July's non-farm payrolls will be examined under a microscope.
I think the best case scenario for the economy with these next few jobs reports is a number that comes in near expectations. If the number comes in too high, it could be perceived that the Fed will hasten its exit from QE. If the number comes in too low, it could be perceived that the economy--which (as the story goes) has now been left to its own devices by the Fed--could be headed for another crisis. Either scenario could trigger another sharp sell-off in stocks, and the Fed might have to put in a quick phone call to its mouthpiece over at the Wall Street Journal.
*DISCLOSURES: No relevant positions