Stocks Slammed on Stimulus Disappointment

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U.S. equities were hit hard on Friday, capping a two-day bout of weakness that has taken large-caps back to levels not seen since October. Investors continue to respond to the historic decision by the Federal Reserve to raise interest rates on Wednesday for the first time since 2006.

The 0.25% move may not seem like much, but for a financial system that had grown addicted to the Fed’s monetary morphine, the comedown isn’t going to be fun.

In the end, the Dow Jones Industrial Average lost 2.1%, the S&P 500 dropped 1.8%, the Nasdaq Composite fell 1.6% and the Russell 2000 ended the day 1.3% lower. Treasury bonds were stronger, the dollar mostly weakened, gold enjoyed a nice 1.5% rise, and crude oil fell another 1.1% to $34.57 a barrel as it plumbs the depths of its 2009 recessionary lows.

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Defensive utility stocks were able to limit their decline to 1.3%. BlackBerry Ltd. (NASDAQ:BBRY) gained 10.3% after reporting better-than-expected Q3 earnings on strong revenues. Darden Restaurants, Inc. (NYSE:DRI), of Olive Garden fame, gained 7% after a big fiscal Q3 earnings beat on strong profitability.

On the downside, financials were the worst performers down 2.5% followed by tech, down 2%. Boeing Co (NYSE:BA) lost 4.1% after suffering an analyst downgrade from Wells Fargo on fears of weak forward guidance and the headwinds from lower prices on commercial airliners.

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Tech heavyweight Apple Inc. (NASDAQ:AAPL) lost 2.8% falling out of a multi-month consolidation range on festering worries about iPhone demand and sales in China as the stocks of its component suppliers — such as Skyworks Solutions Inc (NASDAQ:SWKS) — get slammed. Morgan Stanley, in a note to clients, highlighted headwinds from higher prices in global markets and a maturing market for smartphones.

The weakness in AAPL shares have boosted the value of the January $110 puts recommended to Edge Pro subscribers to a gain of 112% since recommended on Wednesday.

The day’s theme was disappointment with central bankers. Investors are worried that the Fed’s four-hike forecast for 2016 is too aggressive, and want to see that number cut in half given tepid inflation pressure. Until the Fed relents, or job growth data weakens significantly enough to give them pause, this dynamic will continue.

On Friday, however, the focus was mainly on what happened in Asia after the Bank of Japan’s announcement of supplemental measures to its existing bond buying program were met with a collective shoulder shrug. They included a maturity extension on government bond purchases and a new ETF purchase program. Yawn.

This echoed the tepid response the European Central Bank recently got to a small extension to its bond buying program and when combined with the Fed tightening this week, poured some cold water on the true faith of global monetary stimulus.

No wonder markets are so volatile. I continue to recommend a defensive focus to subscribers, including the VelocityShares 2x VIX (NASDAQ:TVIX) that is up 35% month-to-date for Edge subscribers as the Dow looks set for a retest of its August-October lows amid a breakdown in market breadth, weakness in bonds and commodities, and price declines in areas like small-caps, transports, and utilities.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to Investorplace readers.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/12/stimulus-stocks-fed-rate-hike/.

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