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Global Macro: Banks, Bonds Weak After Fed

NEW YORK ( TheStreet) - Markets fell Thursday, as many analysts believe equities have reached a near-term peak.

Bonds, equities and precious metals were bid higher throughout October as investors believed the Federal Reserve would keep bond purchases intact.

The Fed did say on Wednesday that it will keep its policy in place, but it still ignited a sharp selloff as its comments were more hawkish than investors had expected. The Fed, however, made little to no reference to slowing down its bond purchases soon.
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Equity indexes have been strong since the government shutdown ended; nonetheless, the move to record highs has come alongside a move to less risky stocks not as sensitive to general economic conditions. High-beta momentum stocks such as Netflix (NFLX - Get Report) and Tesla Motors (TSLA - Get Report) have dropped as investors have preferred the more defensive consumer-staple sector.

Meanwhile, financial stocks such as JPMorgan Chase (JPM - Get Report), picture below, have remained weak.

Although JPMorgan has its own massive legal issues, the bank's weakness is no less bearish for the broader market. The stock made a large head-and-shoulders pattern on its hourly chart throughout October.
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It has broken the support level of the pattern over the past few days and doesn't look to be pulling back until its price reaches the $50 range. With high-beta and financial stocks weighing on markets, a correction to lower levels over the next few weeks may be in the cards.

The next chart is of Shares Barclays 20+ Year Treasury Bond (TLT). Many investors believed that bonds would rally if the Fed kept stimulus in place.

The Fed kept its policy intact, but bond prices still fell. The selloff has caused many to turn bearish on the long bond, although that may be premature.

On the chart below, the Fibonacci indicator is placed over price action. The indicator highlights potential points of retracement based on the previous move from base to peak. The pullback to the 38.2% level signals a bullish continuation is still possible.
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Until bonds break out of the current pattern to the upside or downside, there is no reason to give up hope on bonds and thus lower interest rates just yet.

The perception of hawkish behavior from the Fed looks to be purely speculation since stimulus is still in place.

If equity markets do push markedly lower, Treasuries may be the safe-haven asset investors turn toward.

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Andrew Sachais' focus is on analyzing markets with global macro-based strategies. Sachais is a chief investment strategist and portfolio manager at the start-up fund, Satch Kapital Investments. The fund uses ETF's traded on the U.S. stock market to gain exposure to both domestic and foreign assets. His strategy takes into consideration global equity, commodity, currency and debt markets. Sachais is a graduate of Georgetown University, where he earned a degree in Economics.

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JPM $57.75 0.00%
NFLX $82.79 0.00%
TLT $128.72 0.00%
TSLA $162.60 0.00%
AAPL $94.02 0.00%


Chart of I:DJI
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