Market Direction Mid Week Update

Market Direction: BULLISH alert issued 6/2/2016

After 15 weeks of a market uptrend, the stock market is currently under pressure and investors should consider taking profits.

If there was ever any doubt that we would end the year without a big interest rate hike, it's probably been erased by now. Still, investors should keep an eye on the Federal Reserve because their actions—or inactions—can tell us something about how well they think the economy is humming along and provide some clues as to what you should be doing with your money.

For now, because of Brexit and other global-market concerns, I'd say the folks at the Fed are in no particular hurry to raise the nation's unusually low interest rates too fast. The more likely short-term scenario is there could be one small increase sometime between now and the end of the year to ever so gingerly lift the rate.

Why the hesitation on the Fed's part?

For one thing, the market does not seem to be expecting anything more than an incremental increase, as I'm sure the Fed knows. Anything beyond that would catch the market by surprise, and as we saw with Brexit and many other unexpected moments in the economy, the market does not like surprises.
It's also worth remembering that one of the Fed's main responsibilities is to pursue full employment. Right now, employment looks pretty good overall, with the unemployment rate hovering around 5% (after ratcheting up to 10% at the height of the recession).

So there's just not much incentive on the Fed's part to do anything that risks spooking the market. I think what's more likely to happen is the Fed will gradually raise interest rates—not over a period of months, but over a period of years—closer to the historical norm of about 6.5%. When the Fed does that, it is signaling that it sees a healthy, improving economy that can handle the rate increase—as long as the rate increase doesn't come sweeping in too quickly.

This steady-as-she-goes increase is a big call to action for investors because it should create some buying opportunities in the market.

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The all-time highs since our initial recommendation to go LONG this market. Here is how the markets have performed:

Stock Market Direction Recommendation (6/2/2016)
Dow	up 884.05 points a 4.95% gain	8/15/16
Nasdaq	up 316.25 points a 6.36% gain	9/7/16
S&P 500	up 88.55 points a 4.21% gain	8/15/16

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