Market sells on Fed mixed message

As I write this, stocks are up, but they should close down and lead to a down few weeks. The GDP came in line, not negative, but still indicates a general slowdown with no clear end in sight. The banks and financials (XLF) will not be able to break through the downtrend as the market uncertainties that lead to the rally are gone with the GDP and Fed data now known. The only remainder is the job numbers, which are a lagging, rather than a leading indicator of the economy. Many economists believe businesses will face a slow 2nd quarter before improving in the 2nd half of the year. The leader out of this pseudo-recession/slowdown will be the banks, and with Citigroup's announcement of a $4.5 billion stock offering to raise funds, after the company said it would not, and projections of more to come, it appears that there is still weakness and not enough confidence to bolster up the recent gains. (1) Looking for S&P to retrace end of March/mid-April lows. Holding May SDS and QID calls.

The rising dollar will be halted and start to fall again with the Fed's recent cut, as well as no promises against further easing. The Fed gave the market what it wanted in a 25 bps cut, but commodities are showing signs of inflation, and the unclear/non-existent language of an end to the easing will make it harder for the Fed to signal a reversal, if one is indeed coming. Criticism that the Fed is making rush judgments comes from Allan H. Meltzer, Cargegie Mellon political economy professor, who says:

"My view is that the Fed is back doing the silly things it did in the 1970s, of trying to make judgments that have long-term consequences based on short-term data... It should get back to the period of 1985 to 2003 known as the Great Moderation."

Looking for gold to reach Mid-March or Mid-April highs. Bought GLD.

Sources:
1. Citigroup Increases Stock Offering to $4.5 Billion
2. Fed Cuts Rate by a Quarter Point, to 2%

The above essay is for the purposes of discussion only and should not be taken as investment advice.