Today markets staged small decline. This decline is mainly attributed to weak ADP employment report. This report suggested a reduction of 23000 heads for the month February to march. But I think this report result should not be considered as preface to the Friday’s unemployment report. As Friday’s report is more comprehensive and contains the new additions from the public sector. So it means last two days fall should not let bears to come out of their hibernation and declare their possibility of winning. I think eventually bears will be vindicated but they have to wait till markets have completely understood that economies cannot be driven by public or private debt for long time. Economies are driven by growth and quality earnings. So I will safely predict S&P 500 will rise above 1200 and may be 1300. Reason being clear, like Washington depends on daily polls every day people are depending for their well being on stock market performance. If stocks fall for few days media will go crazy about coming Armageddon. Typically if you have observed markets have become very resilient to bad news. They tend to fall less for bad news and rise more for good news. This asymmetric behavior is what driving markets crazily up.
On the Monetary policy front, Fed is on hold with regards to hiking fed funds rate. I think fed will raise the rate only after markets have priced in more than 100% probability. This has been the case for most of the previous hiking cycle. Fed is on hold not for any fancy reasons. It wants to be sure that its hikes are required to tame the inflation not growth. Fed has to face huge debt supply from the US treasury. So takeaway here is to play money market carry trades. This involves buying calls on EDZ0
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