U.S. markets ended the session broadly lower, giving up earlier gains following the Federal Reserve’s move to raise the benchmark interest rate. The choppy session was less volatile than the past two but the lack of leadership and sector rotation remains a concern.
The Nasdaq gave back 0.3% after trading up to 7,412 but was unable to hold near-term resistance at the 7,400 level for a third-straight session.
The Dow declined 0.2% despite making a run towards resistance at 25,000 after reaching a peak of 24,977.
The S&P 500 stumbled 0.2% following a late session push to 2,739 before holding the 2,700 for the third-straight session into the closing bell.
The Russell 2000 bucked the trend after rising 0.2% while reaching an intraday peak of 1,587.
Energy zoomed 2.6% and Materials jumped 1.1% to lead sector strength. Consumer Staples fell 1.2% and Real Estate dropped 0.9% to lead sector laggards.
Global Economy – European markets showed slight weakness despite raised outlook on German GDP. The Belgium20 and UK’s FTSE 100 gave back 0.3% while the Stoxx Europe and France’s CAC 40 dipped 0.2%. Germany’s DAX 30 was up 2 points, or 0.01% and
The German government’s council of economic advisers raised the German 2018 GDP forecast to 2.3% from a 2.2% estimate in November. The advisors said the ECB’s exit from extremely expansive monetary policy is overdue in view of improved economic outlook and higher inflation.
The UK ILO unemployment rate unexpectedly fell 0.1% to 4.3%, stronger than expectations of no change at 4.4% and matching a 42-1/2 year low.
UK January average weekly earnings rose 2.8%, stronger than expectations of 2.6%.
Asian markets settled mostly lower with Japan’s Nikkei closed for a holiday. Hong Kong’s Hang Seng fell 0.4% and China’s Shanghai was down 0.3%. South Korea’s Kospi slipped 0.1% while Australia’s S&P/ASX 200 added 0.2%.
MBA Mortgage Applications sank 1.1%, in addition to a 1.4% rise in the purchase index and a 4.5% decline in the refinancing index. The average 30-year fixed mortgage rate sank 1 basis point to 4.68%.
The Current Account deficit, a measure of the nation’s debt to other countries, widened 2.6% in Q4. The deficit widened to $128.2 billion from a revised $101.5 billion in Q3.
Existing-home sales ran at a seasonally adjusted annual pace of 5.54 million in February. They were 1.1% higher than in February of 2017, and the rate was higher than 2017’s full year total of 5.51 million.
FOMC raised interest rates by 25 basis points with Federal Funds Rate at 1.50%-1.75% versus consensus of 1.625%.
Market Sentiment – The FOMC hiked the rate band 25 basis points and kept the dots at 3 for this year. The vote was unanimous. The Fed’s statement indicate that the economy has been rising at a moderate rate and that job gains have been strong in recent months.
As far as forecasts, the Fed’s dot median for 2019 is at 2.875% from the prior 2.688%, with the range widening to 1.6% to 3.9% (versus the December range of 1.4% to 3.6%), while the longer run projection was nudged up to 2.875% versus the prior 2.75%.
While the 2018 plot showed no change in the 2.125% median estimate, the slant of policy views was more hawkish. The average funds rate for this year rose to 2.192% from 2.016% back in December, and estimates ranged from 1.625% to 2.625% (compared to December’s range of 1.125% to 2.625%).
Meanwhile, the 2019 outlook showed a 2.917% average, and a high estimate of 3.875%, versus December’s 2.695% average and the 3.625% high reading.
Fed Chairman Jerome Powell said the natural rate of unemployment isn’t observed directly, and any point estimate is surrounded by uncertainty bands.
He said so far there is no sense in the data that analysts are on the cusp of an acceleration in inflation but said policymakers will be sensitive to any signs that inflation is picking up. Powell believes the neutral rate is still quite low.
Powell went on to add the Fed sees limited inflation pressures despite upward growth outlooks and lower unemployment rate projections, and that reflects the flatness of the Phillips Curve.
He stressed the Fed is trying to take the middle ground on inflation. As far as the symmetric inflation outlook, he said the Fed will always be seeking 2% inflation and will be concerned with sustained deviations around that level.
The iShares 20+ Year Treasury Bond ETF (TLT) traded higher for the first time in four sessions after tapping a high of $119.42. Lowered resistance at $119-$119.50 held with a close above $120 and the 50-day moving average being a slightly bullish development.
Support is at $118.50-$118.
Market Analysis – The Spider S&P 500 ETF (SPY) tested a high of $273.27 shortly after the Fed minutes were released with near-term resistance at $273-$273.50 and the 50-day moving average holding.
Additional hurdles are at $274.50-$275 and more important levels that need to clear before possibly going long. Support is at $270-$269.50 with a close below the latter being a slightly bearish development.
RSI is approaching resistance at 50 with continued closes above this level being bullish for a possible push towards 60 and February/ March highs. Support is at 45-40.
The iShares PHLX Semiconductor ETF (SOXX) closed higher for a second-straight session with the intraday high reaching $193.56. Resistance at $193-$193.50 held into the closing bell.
Continued closes above the latter could lead to run towards $195-$197.50. Near-term support is at $190.50-$190 with risk to $187.50 on a move below the latter.
RSI is trying to clear resistance at 60 with 70 in the works on continued closes above this level. Near-term support is at 55-50.
Existing Position Update
TSLA is moving our way. I expected upside but didn’t want to risk the option expiring in the money in 3 days.
I do believe the bulk of negative data is behind us or at least priced into the shares at this time.
I do believe we will see a bit more stagnation in the coming days, which will lead to further decay in the fat premium that we pocketed yesterday and make up for the loss on the previous position.
FB is moving back into range. Expect a bit more upside since the negative data associated with data usage is absorbed into the stock. Usually, after extended trading range, we tend to see consolidation…especially in large cap techs.
FOMC had minor impact on bond prices – which confirms that markets are assimilating the current timeline from the FED.
I’ll looking at targeting AAPL, ULTA and BIIB and will have some good profit opportunities before the end of the week.