The Market Got It Wrong

The market is not always  right.  So says Barron’s.

The stock market is getting clobbered today as investors worry that stronger economic data–and today’s data was strong–could lead to a faster pace of rate hikes.

Now how about that data. September’s durable goods orders rose 2.2%.  This easily surpassing the 1% predicted by economists.  In addition, the pace of new home sales growth rose to their highest level since 2007.  Yet rather than boosting stocks, the good news has caused it to tumble. What gives?

Part of the blame should go to Federal Reserve rate-hike expectations. The Fed is meeting next week to discuss monetary policy.  No rate hikes are expected.  Nevertheless, investors are is pricing in the near certainty of one in December.  And the odds implied by the option market now sit at 96.7%.  This is up from 91.3% yesterday and 72.3% one month ago.  If the Fed starts worrying that the economy is overheating, rates could go up even faster.  And this might derail the market.

Meanwhile, others have blamed the infighting among Republicans for today’s decline.  They fear that it could delay tax reform.

Read more.