Analysts Weigh In On Today's Market and the Fed

From Barron's Stocks to Watch:
From First to Worst: Dow Drops 335 Points Day After Year’s Biggest Gain

Yesterday’s rally–the biggest of the year–could have been a reason for optimism but investors took it as something else altogether: An opportunity to sell.

The Dow Jones Industrial Average plunged 334.97 points, or 2%, to 16,659.25, its worst point decline since June 2013. The S&P 500 plummeted 2.1% to 1,928.21, while the Nasdaq Composite tumbled 2% to 4,378.34. The small-company Russell 2000 once again bore the brunt of the selloff, after dropping 2.7% to 1,067.99.

Don’t blame the U.S. economic data. Jobless claims fell to 287,000 last week, easily beating the forecast for 295,000, and bringing the four-week average to 287,750–the lowest since 2006. Pierpont Securities’ Stephen Stanley is shocked by how strong the numbers have been:

The last time initial claims were running lower than they are now by a meaningful amount was early 2000, when the unemployment rate was 4% (U6 was 7%) and the labor force was nearly 10% smaller than it is now (so that, all else equal, an equivalent labor market situation would yield initial claims 10% higher than in early 2000).  I can believe that the pace of layoffs is quite slow (as I have noted many times, the trouble in this cycle has been tepid hiring, not excessive layoffs), but I continue to believe that the recent levels of claims seems too low given everything else we know.  Having said that, the totality of the labor market data continues to suggest pretty loudly that the Fed doves’ assessment of immense slack remaining is simply wrong.  We are just waiting for the last shoe to drop (wage hikes), and anecdotal and survey evidence is building on that front.

ISI Group’s Dennis DeBusschere thinks the S&P 500 will test 1,900:

The composition of the rallies have been disappointing (cyclical lagging dramatically and inflation expectations pinned near the lows) and until that changes, it will be tough to embrace rallies off oversold conditions. We had thought we could still see some more USD weakness, but Fischer didn’t say anything material. Data was ok today with claims better than expected, but we heard some concerns about inventories higher than expected as sales came in lower than expected. The short term fear is a hard break to the August lows, (1900ish) given how quickly the rallies have faded.

Rhino Trading’s Michael Block thinks investors should ignore what the Fed should do and focus on what they will do...

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