The market grows more treacherous

Stocks drift lower and bonds are hit as investors await the Fed. Prepare for higher volatility this week.

By InvestorPlace 6 hours ago

Credit: © Scott Eells/Bloomberg via Getty Images
Caption: A trader analyzes stock data on the floor of the New York Stock ExchangeBy Anthony Mirhaydari


With summer vacations fading evermore into distant memory, investors are being faced with increasingly treacherous market conditions in a month that historically has been a poor performer.


On Monday (the six-year anniversary of Lehman Bros. imploding), stocks finished mostly lower as bonds were hit once again heading into Wednesday's critical Federal Reserve policy meeting statement.


In the end, the Standard & Poor's 500 Index ($INX) lost a fraction as it remains below the 2000 level. The Nasdaq Composite Index ($COMPX) lost 1.1 percent as the approaching Alibaba IPO is sucking the wind out of big tech stocks.


Notably, the Russell 2000 ($TOMX) lost 1.2 percent as it dropped below its 50- and 200-day moving averages.


Fears are growing that the Fed, increasingly cognizant of a strengthening labor market and growing concern about the dangers of holding interest rates too low for too long, will drop in the "considerable time" language from its statement.

So much depends on the fate of these two little words.


Already, bonds (which, by the way, have been in a bull market for more than 30 years) have been stalled over the last few months on the knowledge that the Fed's QE3 bond buying program remains on track to end in October. But that has rattled markets over the last week has been a growing consensus that the Fed's first short-term interest rate hike could happen in the middle of 2015; whereas before, Wall Street wasn't looking for action until around September 2015.

A more hawkish Fed statement on Wednesday could further push up both the timing and the pace of the Street's rate hike expectations. Not only will bonds see additional selling pressure if that happens, but stocks could as well since cheap credit has bolstered stocks by funding share buyback programs.


There's more.


With bond yields so low, and so much money piled into bond funds ($1 trillion into U.S. bond funds since 2009) amid very low secondary market trading volumes, there is a risk of large price swings in areas like high-yield corporate bonds should a sooner or more aggressive Fed tightening campaign roil the bonds market -- which, as I mentioned earlier, has been rallying since the early 1980s.


Most people just don't remember what a secular bear market in bonds looks and feels like anymore.


To this point, the Institute of International Finance -- a global association of banks -- recently warned of potential trouble here. And back in June, there was an article in The Financial Times that said the Fed was looking at limiting the stampede out of bonds by imposing an exit free to sell.


Outside of the Fed news, investors were pressured on Monday by weaker-than-expected industrial production data out of China overnight. In fact, the result was the weakest since 2008 while power output declined for the first time in over four years. The data would've normally increased speculation that the People's Bank of China would respond with stimulus, but the official Chinese press downplayed the potentially for any such move as China's obsession with credit-fueled growth loses its efficacy.


For now, investors would do well to prepare for higher volatility later this week and into October as the market -- at a time of extended bullish sentiment (AAII bears lowest since 2004) -- digests the coming change of Fed policy.


Edge subscribers enjoyed a 5.3 percent gain in their VelocityShares Daily 2x VIX Short-Term ETN (TVIX) position today for a total gain of 9.2 percent so far this month.


More from InvestorPlace

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters, as well as Mirhaydari Capital Management, a registered investment advisory firm.

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32Comments
5 hours ago
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As long as the sheeple keep believing the economy is just fine, the rich will consider to build wealth.  I don't see that changing anytime soon.
4 hours ago
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We have yet ANOTHER failed prediction from the basement dwelling lunatic known as V_L, (Veteran Lunatic)!  The ONLY thing that's going to "run dry" on Monday, (September 15th) is V_L's basement water bowl and food dish.  I feel bad for V_L, he opened up to me once and shared that his mother doesn't let him out of the basement for fresh air or exercise.  I subsequently discovered that he set a new Guinness WORLD RECORD for being wrong more days in a row than anyone else in history!  His FAILED September 15th prediction has just added to this record of embarrassment!  Congratulations to basement dwelling lunatics everywhere!
5 hours ago
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Coast to coast am with George Noory, the economist predicted this year DOW volumes will reach

up to 172, which it did. Then he said the economy will tank down to 400 in 2015-2016. YOU HAVE BEEN WARNED!!!! 

5 hours ago
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"... increasingly cognizant of a strengthening labor market "  GIGO!  When an article begins with a false statement in the first sentence, there is no reason to read further. 
3 hours ago
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How would the market moderate (either way) if the Scots vote to become independent?
1 hour ago
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The FED is most interested in maintaining markets.  These weather balloons they keep sending are to gauge reaction and in time it will be like the boy hollering wolf.  There is no real inflation.  The inflation we see has to do with pricing power and consummerables which will in time see their prices collapse as well.  Like the gold guy that predicts gold will go to 2000 and then down to 800, the same with food prices.  Everyone will readjust with less and that is the Global Economy New World Order in a nutshell.  We will in time see deflation in these products as well as autos and homes. When consumers have no money what do all you smarty's think is going to happen?  Dah!  No money equal no inflation and eventual price collapse.  But you are all so smart you just come here and listen to these Street Cats tell you how you should think even though it is all wrong.  You are just playing their game. Not a lot different than listening to these political partiers telling you who to vote for. Dumb Dumb Dumb Dumb.  No those aren't Obama war drums.
3 minutes ago
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If there are any traders out there trading the Forex I wanted to warn you don't waste your time I've been trying to make money with it for years! Go to the website Gold Trading Academy and get into trading the futures instead it's much better now I'm making money trading and very happy.

 

 

13 minutes ago
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Trading the oil market is an easy to make money. Especially when you apply the Gold Trading Academy method. Want to learn more? Just Google Gold Trading Academy and you’ll see what I mean.

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Did I read in a comment or snippet that "pigs are flying"....Where are Pigs flying ???

We want a picture of that...


I read where the Palin family might be in a brawl, are the Russians watching, will they get involved?

52 minutes ago
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The real reason not to read this is The Author ......Doom and Gloom Tony. For years he has been predicting a crash and we all know what has happened but...someday...He will be right. Until then I will continue to do the opposite of what he implies and I suggest the same for my friends.
4 hours ago
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I don't really think the month has much to do with anything... it's more the fact that every currency on the planet is locked up and hoarded in markets fully dysfunctional to every society. Wealth is ignorant if it leads to war because it dies. It's time to put immaturity back in diapers and release monies the world will use to recover with.
Close the banks, end the Federal Reserve and all Central Banks, get RID of Wall Street and every other shill factory. If it doesn't generate enterprise, it has no business and is publicly traded against all economies. Dissolve them. They mean nothing to the real world. Goldman Sachs is part of the Doe INDUSTRIAL Index. Twitter, Linked-In, Facebook, Amazon & Google are not really businesses and don't help civilization, they decay it. When that makes sense... pigs will fly. When immature fools become millionaires without any enterprise investment, catastrophic collapse occurs. It's inevitable. 
3 hours ago
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The same Bad Players that caused the Great Recession are the same Bad Players running things now. So why do some Folks think the end result will be any different.

Proverbs 11 Complete Jewish Bible (CJB)

18 The profits of the wicked are illusory;
    but those who sow righteousness gain a true reward.
------------------------------
Proverbs 27 Complete Jewish Bible (CJB)

12 The clever see trouble coming and hide;
    the thoughtless go on and pay the penalty.

3 hours ago
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Tony "ISIS" Mirhaydari only shows up when there's selling in the market and blood in the streets because he's a short-seller. He couldn't pick a real growth stock to save his life. Every single time Tony has bet against Obama he has lost his clients a ton of money. Ignore this blip in the market and stay long in ticker SCHD (Charles Schwab High Dividend ETF) and ticker BX (Blackstone).
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OMG, Oh Gawd, oh no....It's all coming down and it isn't rain...!!
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[BRIEFING.COM] The stock market welcomed the new trading week with a mixed session that saw relative strength among large-cap stocks, while high-beta names underperformed. The Dow Jones Industrial Average (+0.3%) and S&P 500 (-0.1%) finished near their flat lines, while the Nasdaq Composite and Russell 2000 both lost 1.1%.

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