Tags: Fed | rate | Wal-Mart | bank

Speculation Continues on Fed Rate Hike, Retail Stocks Decline

By    |   Wednesday, 20 May 2015 12:45 PM

In the first clip, Heather Loomis, director of fixed income at JPMorgan Private Bank, looking for a rate hike by the Federal Reserve, follows the established pattern of recommending bank and other financial stocks. She notes that in the short run consumers may move toward mortgages in order to take advantage of low mortgage rates while they last. Loomis raised the prospect that the European Central Bank might become more aggressive in implementing quantitative easing, as the Fed moves to raise rates, and this could cause investors to favor EU versus U.S. stocks.

Steve Grasso, director of institutional sales at Stuart Frankel & Co., recommended E-Trade (ETFC) as a stock already up 22 percent that "explodes even higher" in a rising rate environment. The theory is that investors will seek out "wealth management centers" to help them manage the changing rate environment.

David Katz, chief investment officer at Matrix Asset Advisors, questioned the stress put on the release of minutes of Federal Open Market Committee minutes, with the latest scheduled for Wednesday, and he stressed that "the Fed has a lot of flexibility." This writer agrees the emphasis is overdone but suspects that a rise in rates is still likely to be stretched out and that the Fed has already fallen behind the market because it doesn't want to be blamed for stifling the tepid recovery. Thus, while the Fed has great flexibility, it habitually fails to use it well. Katz put a positive spin on poor earnings of retailers, saying this will enable them to do better later this year.

Scott Nations, chief investment officer of NationsShares, challenged pundits who have been predicting a correction in stocks, chiding them that "People who've been rooting for a correction for the past three years are going to be wrong for much of this year." He insisted that the Fed is "anxious to start to normalize rates," and he predicted this will start in September. He declared that Fed Chair Janet Yellen is scheduled to speak on Friday as if this alone is meaningful. Asked about disappointing results in retail stocks such as Wal-Mart (WMT), Nations allowed this was "horrible for Wal-Mart investors, because Wal-Mart just got crushed and brought retailers down with it."

Nations suggested this means that consumers are saving the money provided by lower gas prices and "in the long term this is going to be great for the U.S. economy." This writer would note that this stacks up against a prediction at a recent conference that consumers would be unable to sustain spending as the year goes on. Nations repeated the prediction of other commentators that financial stocks would benefit from the Fed's action because of "profoundly" improved net interest margins, even though "they seem to lurch from one crisis, one malfeasance, to another. He asserted that "banks don't want their traders to break the law; they can't make enough money to make up for these multi-billion-dollar fines that they end up paying."

Wal-Mart (WMT) had a rollback of 4 percent on its stock upon release of its earnings, and Fast Money traders looked to this for insight into how consumers are responding to lower gas prices and the condition of the economy. Dan Nathan, co-founder and editor of RiskReversal.com, noted declines in stocks of Kohl's (KSS), 13 percent; Urban Outfitters (URBN), 16 percent; and Dillard's (DDS), 7 percent, and he criticized Home Depot (HD) for relying on "financial engineering," in the absence of sales growth.

Karen Finerman, CEO of Metropolitan Capital Advisors, called the decline in Wal-Mart "overdone," because "the American consumer just cannot stop spending."

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In the first clip, Heather Loomis, director of fixed income at JPMorgan Private Bank, looking for a rate hike by the Federal Reserve, follows the established pattern of recommending bank and other financial stocks.
Fed, rate, Wal-Mart, bank
602
2015-45-20
Wednesday, 20 May 2015 12:45 PM
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