The Fed’s FUD (Fear, Uncertainty, Doubt)

This week we heard from the Federal Reserve that there will be no change in the guidance for monetary policy in the immediate future. Rates will remain low for the time being, and by low, I mean near zero. This excessively cheap monetary environment allows debt to be created with virtually no end in sight. This easy money policy is responsible for the potential hyperactive spike in inflation.

We are seeing prices rise across the board, everything from avocados to rental cars, to the price of your home is up. Reports of massive overbidding in the price of housing as buyers recklessly attempt to acquire everything in sight while rates are so low. It could be argued that the current state of affairs is unsustainable.

Now, let's look at what this Fed announcement (or lack thereof) has done to the market this week. The S&P 500 (SPY) and Dow Jones (DIA) saw a harsh sell-off Thursday and Friday, both breaking under their 50-dma’s, and having momentum indicators spell out the beginning of longer-term bearish trends. No doubt the dip will be met with mountains of newly minted currency, created in a last chance attempt to keep the economy and the market afloat. The S&P 500 closed under a critical support level at $416.50, and in the final minutes of trading futures broke over $30 from 4175 to 4142 to close the week on the low.

Commodities took a big hit as well with the sole exception of Crude Oil (USO) which ended the week slightly positive. Precious metals were not spared by market sell-off despite traditionally being used as inflationary hedges, with (GLD) selling off over $50 in the wake of Wednesday’s announcement. The dollar’s rally pressured gold along with rising short term rates.

One sector that has so far been able to resist the sell-off has been clean energy, led by Solar Energy (TAN). This sector has gained major political support nearly worldwide, with a transition to clean energy emerging across transportation, industrial and retail sectors.

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