Short Take: Yellen/Fed In Focus

By David Moenning of Sowell Management

Chief Investment Officer at Heritage Capital Research • Nov 17, 2016 at 11:53 AM EST

Stocks are now overbought from a short-term perspective and mean-reversion indicators are waving yellow flags.

Janet Yellen will testify before Congress today and as such, her remarks and Q&A will likely take center stage. Traders will be listening intently for Ms. Yellen’s outlook rates as well as any commentary towards President-elect Donald Trump. With expectations of a rate hike in December (as measured by the futures market) now close to 100 percent, any hints on the longer-run game plan will be closely watched.

In addition, Ms. Yellen will likely be quizzed on her views of Trump’s fiscal policy plans, and how they might impact the Fed’s outlook.

Yellen’s testimony will be released at 8 a.m. eastern, with the hearing before the Joint Economic Committee beginning set to begin at 10 a.m. eastern.

Recall that yesterday, St. Louis Fed President Bullard suggested that a December rate hike would effectively turn the Fed’s monetary policy neutral. In Fedspeak, this is being interpreted as the Fed being “one and done” — at least for a while — in order to give the Fed time to see how the fiscal plans play out in the coming months.

As for the action in the stock market, it appears that traders may have hit the pause button on the recent rally. Stocks are now overbought from a short-term perspective and mean-reversion indicators are waving yellow flags. And finally, let’s remember that the traditional tax-selling period tends to get started around Thanksgiving, something that usually gives way to a year-end or “Santa Claus” rally into the end of the year.

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The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program.

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