For the first time since the financial crisis the fed funds rate is not at zero. Zero interest rate policy (ZIRP) is now over and we are crawling back into a more normalized world. The day did not look all that great heading into the fed announcement. While we did gap to the upside sellers quickly came in and pushed the indexes back to their lows of the session. Then it was time for Janet Yellen to raise interest rates and as soon as the announcement was made the market skidded initially. It didn’t take more than a minute for the market to realize it wanted to push higher and with a flash we were setting new highs for the day. Volume on the session was higher on the NYSE, but lower on the NASDAQ. Not your typical follow-through day, but one nonetheless. Moving back into uptrend mode we will go, but with a keen eye on position sizing and exits.
One more event this week and it will be Friday’s quadruple witching. Friday will also conclude the last trading week in 2015. It has been a wild year and with many not making progress. There are plenty of hedge fund darlings who are down more than 20% on the year! As it stands now the S&P 500 is only up 70bps for the year while the NASDAQ composite is up 7%. The Russell 2000 still is negative on the year with a negative 4.63 return. Not exactly a banner year for small cap stocks. The clear winner so far year-to-date is the NASDAQ 100. Everyone has piled into the large cap index. Stick with what is working and what is winning. Small caps are not leading it is the names within the NASDAQ 100.
Now we have a confirmed rally where do we go from here. There is always the potential we have this market roll back over and head towards new lows. While unlikely, our position sizing and exits will help curb any losses if our positions do not work out and the market reverts to lows. The FANG stocks still look relatively healthy and poised to march higher. We do not want to argue with the market so we’ll simply follow along. It has served us well and we will continue to deploy our time-tested strategy.
A whole new world has begun. Last year we saw the end of QE and now we have the end of ZIRP. Now we are in a VLIRP world or Very Low Interest Rate world. It will be interesting as always to see how we progress forward. Perhaps we’ll get the Santa Claus rally after all!
