It seems that everyone, including the news media, is hoping that the Federal Reserve will not raise interest rates. I think they, as well as the stock market will be very disappointed with the outcome. On news of the next rate increase, stocks should sell off.
Inflation has been rearing its ugly head because of higher energy prices. Since the job of the Fed is to kill inflation, rates must go higher. The talk of rebuilding the Gulf Coast is also creating fears of inflation. At the moment, the CRB Index has been soft which confirms that a slowdown in economic activity is imminent. When we begin to see signs of a slowdown, look for some bottoming action in the Basic Materials Sector. This will be our cue to jump in and buy commodity related securities.
The new claims for unemployment figure will soar due to the thousands of people putting in claims because of hurricane Katrina. Last week, only 10,000 new jobless claims were reported from the hurricane. Its going to be interesting to see the markets reaction to the expected high number.
Gasoline consumption dropped 4% last week mainly due to the fact that there were shortages all across the southeast. Many families cancelled their vacations out fear of being stuck at their destinations with no fuel. This sudden change of plans does not bode well for the earnings numbers due out for Disney.
We initiated a short position in the Consumer Discretionary Sector (XLY) ETF's. This position makes a lot of sense to me given the pressure being put on consumers wallets. No gas, or high energy cost have a way of making you re-think your strategy.
I am looking closely at the Natural Gas Sector right now. One stock I am interested in is Chesapeake Energy (CHK). If the stock sells off again tomorrow, I will probably add it to the IA portfolio. The natural gas infrastructure in the Gulf of Mexico is nothing less than a disaster.
