Whipsaw!

Whipsaw!  Traders were whipsawed by the Fed yesterday as Chairman Powell pulled the plug on the rate-cut dance party.  The Fed took center stage yesterday keeping rates unchanged but dashing hopes of a rate cut causing stocks and bonds to sell off late in the session.

WHAT YOU NEED TO KNOW:

1)  Fed Chairman Powell sees the US Economy “on a good path”.  In yesterday’s policy statement and subsequent press release the Fed cited solid GDP growth and low inflation for keeping rates unchanged.  While it was largely expected that rates would remain unchanged, many bulls were hoping that the Fed would drop some clues on future rate cuts.  A recent decline in core inflation served as fuel for the growing belief that the Fed will have to cut interest rates in order to get inflation back up to their 2% target.  Yesterday’s policy statement highlighted the decline in inflation which was initially viewed as dovish and stocks traded up.  The press conference was another matter altogether as Powell shrugged off the recent drop in inflation stating that the committee believed the pullback was temporary and expected inflation to pick up again… causing stocks to do an about face and sell off into the close.

2)  Rate cuts?  Not too fast.  Before yesterday’s Fed release the probability of a rate cut in June stood at 25% but quickly readjusted to just under 7% after the Chairman’s comments.  The probability of a rate cut by next January pulled back as well but still stands at 56%, and those are decent odds… better than a coin toss.

3)  Earnings were mixed in post bell releases.  Qualcomm, Zynga, and Square all missed by a bunch while Marathon topped estimates.  As traders move past the Fed, earnings will take center stage once again.

THE MARKETS:

Words can be powerful, especially when they are spoken by the Federal Reserve Chairman. Powell’s words alone were responsible for both equity and bond markets to shift gears from up to down late in yesterday’s session.  Dashed expectations led the S&P500 to close down by -0.75%, the Dow Jones Industrial Average to fall by -0.61%, the Russell 2000 to pull back by -0.93%, and the NASDAQ 100 to decline by -0.38%.  Apple managed to hold on to most of its pre-bell gains in the wake of a good earnings release after Tuesday’s session, closing up by +4.91%.  Bonds traded up slightly on the session closing well below inter-session highs leaving the 10 year treasury yielding 2.49%, down by -1 basis point.  The dollar index had a rough ride yesterday as well, falling on hopes of lower rates then rising when those hopes were dashed.  The Dollar Index closed up by +0.21% just below the highs of the session.

WHAT TO LOOK FOR TODAY:

This morning we will get weekly Initial Jobless Claims which is expected to come in at 215k compared to last week’s 230k.  Later this morning we will get the US Census Bureau’s Factory Orders number which is expected to have grown by +1.5% after last month’s decline of -0.5%.  Pre-bell earnings include DowDuPont, Vulcan Materials, Dow Chemical, Under Armor, and Kellogg. After the bell, we will hear from First Solar, CBS, Activision Blizzard, US Steel, Weight Watchers, Gilead Sciences, Monster Beverage, and Skyworks, amongst others.

daily chartbook 2019-05-02