U.S. markets showed overall strength for the first time in 3 sessions following an update from the Fed and its last rate setting meeting of the year. As expected, there were no real surprises from the Fed as they left rates unchanged.

Trade headlines will continue to be the wildcard that could swing the major indexes in either direction with only 2 trading days left before President Trump’s self-imposed December 15th deadline to enact the next round of promised tariffs on Chinese imports.

The Nasdaq gained 0.4% following the 2nd-half push to 8,658. Current and lower resistance at 8,650-8,700 was cleared and held with a close above the latter and the all-time high at 8,705 signaling additional strength towards 8,750-8,800.

The S&P 500 was higher by 0.3% after trading to a late day high just south of 3,144. Key resistance at 3,150 held with a close above this level and the all-time high at 3,154 signaling additional momentum towards 3,175-3,200.

The Dow was up 0.1% after trading to a late day peak of 27,925. Prior and lower resistance at 28,000-28,200 easily held with a close above the latter and the all-time high from late November at 28,174 leading to a run towards 28,400-28,600.

The Russell 2000 nudged up a firth-point, or 0.01%, after trading to an opening high of 1,634. Near-term and lower resistance at 1,635-1,650 was challenged but held with a close above the former and last Friday’s 52-week high of 1,637 getting 1,660-1,675 in focus.

Materials paced sector strength after rising 0.8% while Technology and Industrials rose 0.7% and 0.6%, respectively. Real Estate fell of 0.8% while Financials and Energy dipped 0.2% to round out sector weakness.

Global Economy – European markets settled mostly higher ahead of Thursday’s UK election with a new poll showing the race has tightened considerably in recent weeks.

While Prime Minister Boris Johnson’s Conservative Party has been expected to win, the outcome is now less certain to win an outright majority of seats in Parliament.

Germany’s DAX 30 added 0.6% while the Stoxx 600 and France’s CAC 40 rose 0.2%. UK’s FTSE 100 was up 2 points, or 0.03%. The Belgium20 slipped 0.2%.

Asian markets were mostly higher ahead of the Fed’s final interest rate decision for the year.

Hong Kong’s Hang Seng rallied 0.8% and Australia’s S&P/ASX 200 advanced 0.7%. South Korea’s Kospi gained 0.4% and China’s Shanghai climbed 0.2%. Japan’s Nikkei slipped 0.1%.

MBA Mortgage Applications rebounded 3.8% last week, recouping some of the -9.2% plunge in the prior week. All of the strength was in the refi index, which rebounded 8.7%, from the -15.6% prior decline.

The purchase index dipped -0.4% following the prior 0.9% increase. Compared to last year, the applications index is 63.4% year-over-year higher, with the refi index up 145.9%, and the purchase index up 5%.

The 30-year fixed mortgage rate remained below 4% for a 4th-straight week at 3.98%. It was at 4.96% last year. The 5-year ARM rose to 3.52% versus 3.28%, and was at 4.24% last year.

Consumer Price Index for November rose 0.3%, with the core up 0.2%, versus expectations of 0.2% for both. There were no changes to respective October rates of 0.4% and 0.2%.

The 12-month clip rose to a 2.1% year-over-year on the headline, versus November’s 1.8%, while the core rate was steady at 2.3%. Energy prices led the upside with a 0.8% increase in November after a 2.7% rebound in October.

Food prices rose 0.1% after the prior 0.2% gain. Apparel prices were up 0.1% after falling -1.8% previously.

Transportation costs edged up 0.3% versus the prior 1% gain. Medical care was up 0.3% after rising to a 1% rate in October. Services costs increased 0.3%, as they did in October.

Atlanta Fed Business Inflation Expectations was at 1.9% for the year.

Quarterly Services Survey revealed an unrevised 4.9% Q3 year-over-year gain in the aggregate selected services measure. For the larger components, analysts saw a firm 6.6% year-over-year gain in the finance and insurance component, but a lean 4.4% year-over-year rise for the healthcare and social assistance component.

Analysts still expect a Q3 GDP growth boost to 2.2% from 2.1%, with a -$1 billion trimming for service consumption and no revision for intellectual property rights.

Market Sentiment – The Fed left policy unchanged, as expect with the funds rate target at 1.50%-1.75%. The Fed said the current stance of policy is appropriate, and that the Fed will continue to monitor upcoming information to assess the appropriate path of policy.

That suggests policy is on hold for the foreseeable future until there is a material change in the outlook, as indicated by Chair Powell in October.

Meanwhile, the estimates took out the hike from 2020.

The policy statement was largely a reiteration of October’s, noting the labor market remains strong and economic activity has been rising at modest rate. Inflation and inflation expectations remain low. The vote was a unanimous 10-0.

The Fed’s forecast revisions showed a surprising downshift in 2019 GDP forecasts but boosts for future years, alongside the expected trimming for the PCE chain price estimates and downward tweaks in most of the jobless rate forecasts that reflect recent tight labor market data.

The dot plot forecasts were lowered to reflect consensus forecasts of no policy change from the current 1.625% rate through 2020, though four policymakers expect one rate hike in 2020.

Policymakers expect a rate climb past 2020, though with levels that are ratcheted down to reflect the October rate cut.

The Fed’s GDP central tendency for 2019 Q4/Q4 GDP growth was lowered to 2.1%-2.2%. The Fed’s chain price central tendencies were lowered to 1.4%-1.5% for the headline and 1.6%-1.7% for the core.

The 2019 jobless rate central tendency was lowered to 3.5%-3.6%. Analysts saw downward revisions in the low-end long-run assumptions for both the Fed funds rate and the jobless rate, as the Fed is increasingly associating a lower neutral rate and a larger Fed portfolio with a lower noninflationary jobless rate.

Fed Chair Powell said the economic outlook remains favorable despite risks, where he cited sluggish growth abroad and trade developments that have been weighing on the goods-production sector.

However, he did not really linger on the risks, suggesting they diminished in the Fed’s outlook, consistent with the policy statement which also edited out that phrase phrase.

Powell noted rising incomes and consumer confidence and said that the policy shift this year was a function of surprisingly muted inflation.

The iShares 20+ Year Treasury Bond ETF (TLT) extended its winning streak to 3-straight sessions with the 2nd half high reaching $140.14. Prior and lower resistance at $140-$140.50 was breached but held with a close above the latter signaling additional strength towards $141.50-$142.

Fresh support is now at $139.50-$139 and the 50-day moving average. A close below the latter would be signal a false breakout with backtest potential towards $138.50-$138.

Market Analysis – The Russell 2000 ETF (IWM) was was down for the 2nd time in 3 sessions after tapping an intraday low of $161.95. Near-term and upper support at $162-$161.50 was breached but held.

A close below the former would signal a breakdown out of the 4-session mini trading range with backtest potential towards $160.50-$160.

Current resistance is at $163-$163.50. Continued closes above the latter and last Friday’s 52-week high of $163.41 would be a renewed bullish signal for a run towards $164.50-$165.

RSI has flatlined with upper support at 60-55 holding.

A close below the former would be a bearish development and signal additional weakness towards 50-45. Resistance is at 70.

The Spider Gold Shares (GLD) was up for the 2nd-straight session with the intraday high reaching $139.30. Prior and lower resistance from the start of the month at $139-$139.50 was cleared but held.

A close above the latter and the 50-day moving average would be an ongoing bullish signal with upside potential towards $141.50-$142 over the near-term.

Current support is at $138.50-$138. A close below the $137.50 level would be a bearish signal with additional downside risk towards $136.50-$136.

RSI is in an uptrend after clearing key resistance at 50.

Continued closes above this level would signal additional strength towards 55-60 with the former representing the late September peak. Support is at 45-40 on a move back below the 50 level.

All the best,
Roger Scott.