U.S. markets opened higher and rallied throughout the session following soothing comments from Fed Head Jerome Powell.
This comes after sharp criticism from President Trump who said in an interview he wasn’t too happy with Powell’s assault on interest rates.
It is hard to argue that the Fed hasn’t been listening to the noise surrounding the rapid rise in rates, but lesser hikes in 2019 seem more likely as the Fed is closer to finding a normal rate.
Meanwhile, volatility further relaxed but is still above key levels of support after slipping just 3.1% despite the market’s monster gains.
The Nasdaq soared 3% with the intraday peak tapping 7,292.
Fresh and upper resistance at 7,250-7,300 was tested but held with the index finishing just a point off its session peak.
The Russell 2000 rallied 2.5% after trading to a late session high of 1,530.
Mid-month and lower resistance at 1,525-1,540 was cleared and held with continued closes above the latter signaling a possible near-term bottom for the small-caps.
The Dow also zoomed 2.5% after testing a session high of 25,368.
Fresh and lower resistance at 25,200-25,400 and the 200-day moving average was cleared and held into the closing bell.
The S&P 500 surged 2.3% following the intraday push to 2,744.
Prior and upper resistance at 2,725-2,750 was tested with a close above 2,765-2,785 and the 200-day and 50-day moving averages being more bullish signals.
Technology and Consumer Discretionary led sector strength after jumping 3.5% and 3%, respectively. Healthcare and Industrials rose 2.4%.
Utilities were the only sector laggard after giving back 0.1%.
Global Economy – European markets were flat but slightly lower ahead of the results on a stress test of U.K. banks that will also take into account the effects of Brexit.
The Belgium20 fell 0.3% and UK’s FTSE 100 was down 0.2%. Germany’s DAX 30 declined 0.1% and the Stoxx 600 Europe was off 1/100th of a point. France’s CAC 40 climbed a tenth-point.
Eurozone October M3 money supply rose 3.9% year-over-year, topping forecasts of 3.5%.
German December GfK consumer confidence dipped 0.2 to 10.4, missing expectations of 10.5.
Asian markets settled mostly higher after Economic Council Director, Larry Kudlow, said the White House was having a lot of communication with the Chinese government at all levels ahead of the upcoming meeting between Trump and Xi at the G20 summit this weekend.
Hong Kong’s Hang Seng rallied 1.3% and China’s Shanghai jumped 1.1%. Japan’s Nikkei added 1% and South Korea’s Kospi rose 0.5%. Australia’s S&P/ASX 200 slipped 0.1%.
MBA Mortgage Applications rose 5.5%, while the purchase index jumped 8.8% and the refinancing index rose 0.5% for the week ending November 23rd.
The average 30-year fixed mortgage rate sank 4 basis points to 5.12%.
Revised Q3 GDP growth was left at a 3.5% pace, unchanged versus the advance report, and down from the 4.2% clip from Q2. Consumption was revised down to 3.6% from 4%.
Business fixed investment was bumped up to a 1.4% clip from -0.3%, with residential spending at -2.6% versus -4% previously, and nonresidential spending at 2.5% from 0.8%. Inventories added 2.27% to $123.4 billion versus $113.1 billion, or 2.07%.
Net exports subtracted $104.8 billion, or -1.91%, versus -$98 billion, or -1.78%, previously.
Government spending was revised down to 2.6% from 3.3%.
The PCE chain price index was left unchanged at 1.7% with the core rate slipping to 1.5% from 1.6%. On a 12-month basis, the headline PCE was steady at 2.3% year-over-year, with the core rate unchanged at 2.2%.
October International Trade in Goods was at a deficit of $77.2 billion, missing estimates of $76.9 billion. Exports fell 0.6% to $140.5 billion after climbing 2% to $141.3 billion previously.
Imports edged up 0.1% to $217.8 billion following the 1.7% gain in September to $217.6 billion.
Corporate Profits were up 5.9% for the year.
October Retail Inventories were 0.9% higher to $648.5 billion following the 0.1% gain to $642.1 billion in September.
October Wholesale Inventories increased 0.7% to $650.4 billion versus the 0.6% gain to $646 billion for September.
New Home Sales plunged 8.9% to 544,000 in October, missing forecasts for a rise of 5.8% to 585,000, and the lowest since March 2016. The months’ supply rose to 7.4 from 6.5 and is the highest since 2009.
Sales dropped in all four regions, with the Midwest down 22.1% and the Northeast off 18.5%, while the South slid 7.7% and the West fell 3.2%.
The median sales price for October declined 3.6% to $309,700 after falling 0.8% to $321,300 in September. On a 12-month basis, the price is down 3.1% year-over-year, the same as in September.
The Richmond Fed Manufacturing Index dipped 1 point to 14 in November, missing estimates for a rise to 19. The employment component fell to 11 from 19, but wages picked up to 34 from 28.
New order volume slid to 17 from 20.
The paid index posted a 4.7% pace from 5.68%, with prices received at 2.13% from 2.84%.
The 6-month shipment index dropped to 30 from 49, with the future employment gauge at 32 from 33, and wages at 58 from 59. The future price index posted a 3.92% rate versus 3.87%, with prices received at 2.6% from 2.66%.
Market Sentiment – Fed Chair Jerome Powell said rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy.
He said the economy is continuing to grow above trend and the Fed expects continued solid growth with unemployment remaining low and inflation close to 2%.
Powell said the Fed does not have a pre-set policy path and will assess incoming data in considering policy moves.
He went on to say the Fed’s gradual pace of raising interest rates has been an exercise in balancing risks, adding the Fed must assess the risks of moving too slow or too fast.
On stock market volatility, Powell noted that it is important to distinguish between market volatility and events that threaten financial stability.
He said large and sustained declines in equity prices can put downward pressure on spending and confidence. From the financial stability perspective, he does not see dangerous excesses in the stock market.
The iShares 20+ Year Treasury Bond ETF (TLT) showed weakness throughout the session with the low reaching $114.36.
Upper support at $114.50-$114 and the 50-day moving average were breached with the latter levels holding into the closing bell. A move below $114 would be a slightly bearish development and signal additional weakness.
Lowered resistance is at $115-$115.50.
Market Analysis – The Invesco QQQ Trust (QQQ) extended its winning streak to 3-straight after closing at its session high of $168.70. New and lower resistance at $168.50-$169 was cleared and levels that served as early October support.
Continued closes above the latter would be a bullish development for a run towards $170-$172.50.
A death cross is close to forming with the 50-day moving average on track to fall below the 200-day moving average.
This is typically a bearish signal for lower lows down the road.
However, this can be possibly avoided if QQQ can rebound towards its early November high north of $175 while holding this level into yearend.
Rising and near-term support is at $168-$167.50 with a move below $167 signaling a possible false breakout.
RSI is in an uptrend and has cleared resistance at 50.
Continued closes above this level would signal additional strength for a run towards 55-60 and late September highs. Support is at 45-40.
The Spider Gold Shares (GLD) have been in a tight trading range between $114.50-$116.50 over the past 9 sessions with downside action towards the former over the past two sessions.
The morning backtest to $114.59 held near-term support at $115-$114.50 and the 50-day moving average. A move below the latter could lead to a quick backtest towards $113.50-$113.
Resistance at $115.75-$116.25 was split but held on the rebound to $116.07 afterwards with the former representing late July resistance. A move above $116.50 would be a more bullish development.
RSI has been struggled with resistance at 50-55 for the past few weeks.
A close above the latter could lead to a breakout towards 60-65 and October highs. Support is at 45 with a move below this level signaling additional weakness.
All the best,
Roger Scott.