Early Market Look: Begin with Doubt

“To believe with certainty we must begin with doubting.”
Stanislaw Leszczynski

After a big market decline on Monday on concerns surrounding the uncertainty of the global recovery, yesterday’s performance lacked any real overriding theme. The most dominant macro theme in the past six months seemed to lack certainty; the dollar fell to its lowest level in two weeks, finishing down 1.1% yesterday as the S&P was virtually unchanged.

On the back of the declining dollar, Materials and Energy outperformed while the underlining reading on the health of the consumer continued to weaken. No matter where you look to, housing, confidence or retail sales, the incremental news on the consumer continues to suggest that momentum is slowing; the Consumer Discretionary (XLY) was the worst performing sector yesterday, declining 1%.

The set up for the market today centers on the FOMC meeting and interest rate expectations. The debate surrounding the meeting revolves around the implications of the balancing act on the part of the Fed to try to both dampen near-term tightening expectations and also try to mitigate inflation concerns by outlining an exit strategy from the free money strategy.

The FOMC committee members will be waking up today to the fact that the Organization for Economic Cooperation and Development (OECD) has raised its forecast for the economy for the first time in two years as the U.S. economy shows signs of improving in the second half of 2009.

As part of my research process, I connect with the management teams of three or four companies every week to try to gauge how business is tracking. I have yet to find one that will tell me that the trends are getting better. President Obama is correct to say that “the American people have a right to feel like this is a tough time right now” because it is. The 32% move from the March 9th low has allowed consumers to be more optimistic “than the facts alone would justify.” I feel much better now that the President has given me permission to feel like crap.

Early this morning, the dollar is weaker and the futures are higher and there are lots of doubts about what the Fed will do. While the FOMC is unlikely to raise rates today, you can be certain they will need to plan an exit strategy.