Are Thin Volumes Overstating the Case? - Ahead of Wall Street

U.S. stocks are indicated to follow the lead from European indexes which rebounded today on hopes of improvement in the Ukraine situation. But seasonally thin volumes have a way of exaggerating market moves, and today and the rest of this week will be no different on that front.

Geopolitical developments have been the dominant market driver lately, though worries about the Fed aren't that far from investors' minds either. The key issue on the Fed front pertains when they will start the tightening cycle at they complete the QE unwind later this fall. The consensus view is of a mid-2015 timeframe, but some in the market are justifiably concerned that the central bank could be underestimating the strength of the recovery and could fall behind the curve.

The U.S. Fed's track record in proactively foreseeing turning points in the economy isn't that impressive, to say the least. This concern is in-line with the views of some FOMC officials, but definitely not that of the committee's majority as well as the Chairwoman's. Minutes of the last FOMC meeting coming out on Wednesday afternoon as well as speeches at the Jackson Hole conclave later this week will likely mirror these views.

In corporate news, Dollar General DG is making a bid for Family Dollar FDO, trumping the existing offer from rival Dollar Tree DLTR. Dollar General is the biggest operator in the deep-discount space and is hoping to really bulk up by acquiring the number 2 player in the space, giving it greater rural foothold and nationwide footprint of roughly 20 thousand outlets in 46 states. The bid is in-line with activist investor Carl Icahn's wishes, who had pressured Family Dollar into putting itself on the block.

Sheraz Mian
Director of Research
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