U.S. markets were mostly weak during the first half of trading but improved off the morning lows heading into the Fed minutes.
The small-caps gave an early signal the major indexes could extend their winning streak for a 3rd-straight session as they traded in positive territory within an hour of the open.
However, there was little reaction to the Fed news afterwards despite a more cautious tone with the market finishing mixed for the session.
The Russell 2000 gained 0.2% after reaching a peak of 1,551 while closing higher for the 5th time in 6 sessions. The Nasdaq slipped 0.4% despite making a run to 7,128 but was able to hold the 7,000 level for the 2nd-straight session.
The Dow dropped 0.9% after trading in negative territory throughout the day with the low tapping 24,150.
The S&P 500 stumbled 0.6% after testing a low of 2,639 with the 50-day moving average officially falling below the 100-day moving average and is typically a bearish development.
Energy and Real Estate were the only sectors to show gains after rising 1% and 0.3%, respectively. Financials fell 1.2% while Health Cate were lower by 0.8% to pace sector laggards.
Global Economy – European markets traded lower over concerns about U.S. military escalation in Syria. Russia warned that any U.S. missiles fired at Syria would be shot down and the launch sites targeted, raising the possibility of a U.S./ Russian confrontation.
The Belgium20 and Germany’s DAX 30 dropped 0.8%. The Stoxx 600 Europe and France’s CAC 40 were down 0.6%. UK’s FTSE 100 slipped 0.1%.
Eurocontrol, an air traffic agency in Europe, asked airlines to apply caution on flights to the eastern Mediterranean region due to the possibility of air strikes in Syria over the next 72 hours.
UK February manufacturing production unexpectedly dipped 0.2% month-over-month, weaker than expectations for a rise of 0.2%. February industrial production rose 0.1% month-over-month, weaker than expectations for an advance of 0.4%.
Asian markets were lower across the board with losses contained to less than 1%. China’s Shanghai and Hong Kong’s Hang Seng fell 0.6%. Australia’s S&P/ASX 200 and Japan’s Nikkei gave back 0.5%. South Korea’s Kospi was lower by 0.3%.
Japan March PPI was up 2.1% year-over-year, stronger than expectations of 2.0%.
Japan February core machine orders rose 2.1% month-over-month and 2.4% year-over-year, stronger than expectations for a decline of 2.5% and unchanged, respectively.
MBA Mortgage Applications fell 1.9%, in addition to a 2% drop in the purchase index and 1.7% decline in the refinancing index. The average 30-year fixed mortgage rate declined 3 basis points to 4.66% for the week ending April 6th.
The Consumer Price Index fell 0.1% in March, missing expectations for a flat reading. The core CPI rose 0.2% month-over-month, as expected.
Atlantic Fed Business Inflation Expectations were up 2.3% for the year.
Market Sentiment – The March FOMC Minutes were an interesting read, especially since it was Chairman Powell’s first meeting at the helm.Since the financial crisis a decade ago, the Fed policy has been accommodative or supporting growth.
However, the minutes revealed a few Fed heads suggested it might become necessary to revise statement language. The minutes stated monetary policy eventually would likely gradually move from an accommodative stance to being a neutral or restraining factor for economic activity.
The Fed estimates that the longer run neutral interest rate is 2.9% and raised its benchmark federal-funds rate by a quarter percentage point to between 1.5% and 1.75%.
The minutes also show that Fed was confident that the economy would shrug off its weak first quarter and grow strongly this year. As far as inflation, the Fed expects inflation on a 12-month basis to move higher.
The iShares 20+ Year Treasury Bond ETF (TLT) rebounded to close higher for the third-time in four sessions after reaching a peak of $121.89.
Resistance at $121.50-$122 and the 100-day moving average. Support remains at $120.50-$120 with additional help at $119.50-$119 on a close below the latter.
Market Analysis – The Russell 2000 ETF (IWM) traded up to $154.31 while closing higher for the 5th-time in 6 sessions. Near-term resistance at $154-$154.50 held with a move above $155 being a continued bullish signal. Support is at $153-$152.50 and the 50-day moving average.
RSI has cleared longer-term resistance at 50 with continued closes above this level leading to a possible push towards 60-65. Support is at 45-40 on a close back below 50.
The Health Care Select Sector Spider (XLV) traded in negative territory throughout the session while closing below its 200-day moving average for the 11th time in 13 sessions.
Today’s low tapped $81.25 with upper support at $81.25-$81 holding. The $80 level represents longer-term support from November 2017 and has recently been in play. Resistance is at $82-$82.50.
The 50-day moving average remains in a downtrend and is on track to fall below the 200-day moving average. This would be a bearish development and usually signals lower lows.
RSI is trying to clear resistance at 50 with continued closes above this level being a bullish development. Near-term support is at 40 with risk towards 30 on a close below this level.
All the best,
Roger Scott