For a brief moment at about 2:15 this afternoon, I allowed myself to believe that all this Fed speculation was finally reaching an end. And then I told myself to get real. By my accounting, the FOMC actually delivered the substance of what the “One and Done” hypers had been spinning for the past year - an end to the rate hikes and a dovish commentary. The market did its usual kneejerk and reversal and that’s to be expected. Tomorrow’s action is much more important. As I have repeatedly stated, I don’t place much weight on Fed decisions and think that their effects on stocks are highly illusory. Stocks went up during the 17 rate hikes and before that, stocks went down during the easing period that preceded it. There is an abundance of great work by firms such as Ned Davis that states that markets have gone down in the past when the Fed stopped raising rates. That is contrary to what most people believe should happen but those are the facts. While I like facts, just because something happened in the past doesn’t mean that it must happen each time in the future. There were many moving parts to each market in history and the combinations and permutations of those variables present a unique environment - both as a challenge and as an opportunity. The FOMC is just one actor in this play and they will do what they feel is best. But they have minimal to no impacts on oil prices, commodity prices, geopolitics, military actions and all the other things that are impacting our daily investing environment. I had hoped that we could move beyond all this excessive debate over the Fed, but then it started over. In the last two hours of trading, I got my fill of experts suggesting the wording was not definitive enough or on the other side - that they should have raised again. BLAH BLAH BLAH. It definitely started over and I am sure that we will have to suffer through continuing analysis of each economic report to see if it was a pause or a stop or if we should raise or if we should lower. It’s the world we live in.

While much of the market is awaiting the FOMC rate decision, HedgeFolios is not on hold and this week’s signals will be coming out before Bernanke and the gang do their thing this afternoon. I hate days like today for several reasons. The first is that the signals at HedgeFolios will be affected dramatically by what happens today and since I base this week’s signals on analysis of last week’s data, much of my work is in jeopardy. Fortunately, HedgeFolios concentrates on longer term factors. After similar past situations, I have evaluated the performance of Fed weeks and found that the short term reaction has a measurable effect and then once the dust settles, the signals tend to show minimal impact from the Fed decision. Regardless, I hate being wrong (even in the short term) and by this afternoon, I expect to have some signals I wish I hadn’t changed and others I wish I had. Regret is one of life’s great motivators! The second reason I hate FOMC days is all the back and forth debate on financial media. My solution has been to hit the mute or turn on some music - at least until 2:14. Then I will pay attention. The final reason I hate FOMC days is seeing the market on hold. If there was ever clear evidence of how shortsighted our markets have become, watching everything come to almost a complete halt over the rate decision has to be the worst - at least for me.

I keep looking at this market and on the surface, it’s ugly and getting uglier. However, appearances can be deceiving and it is possible that, in this case, the gradual improvement in the signals at Hedgefolios is a more accurate representation. Last week was encouraging, but a few good days is not enough. We need some positive followthrough on strong volume and that has not happened. With earnings season almost over and nothing much but a sideways reaction, it is clear that a catalyst is needed. Unfortunately, my prior optimism about a good resolution to the Israel / Hezbollah conflict is almost gone, and I am no longer feeling that the end is days or weeks away. I just don’t see it. Consequently, my hopes for a reduction in oil prices are so tied to the Mideast conflict that I have to be doubtful of that as well. I still believe that the FOMC will pause at the August meeting but the comments by William Poole yesterday and some of the economic data on inflation are certainly not supportive of that either. In short, I am not liking the setup we are currently experiencing.

Last week I wrote a post about the media’s hype over Israeli stocks and commented that I was unable to assign a downward move to the Israel / Hezbollah conflict. While I am happy to not hear that BS story anymore, I am wondering what the financial media has to say about the upward moves in most of these stocks since I wrote that post. How could it be that Israeli stocks are going up if the conflict is apparently getting worse? I doubt that it will get any coverage, but if it does - I really hope that I don’t hear that the stock market is discounting a happy ending with the conflict. Not that I don’t want a happy ending, but I am not a believer in the concept that the market is a perfect discounting mechanism.