U.S. markets pushed new record highs on Wednesday’s open with selling pressure and sector rotation hitting shortly afterwards. The mixed finish was slightly bearish with the Nasdaq tumbling 1.3% while holding shaky support at the 6,800 level.
The S&P 500 traded to an all-time peak just south of 2,635 before slipping a point, or 0.04%, while easily holding the 2,600 level on the pullback. The Dow was up 0.4% after kissing a lifetime peak of 23,959 while holding positive territory throughout the session.
The Russell 2000 followed suit after tapping a record high of 1,547 and also gaining 0.4%.
Financials continue to show strength with the sector rising 1.7%. Industrials and Energy also posted solid gains of 0.9% and 0.6%, respectively.
Technology took a beating with the sector sinking 2.2%. Real Estate was the only other sector in the red after giving back 0.02%.
Global Economy- European markets closed mostly higher following news the U.K. has offered to increase its Brexit divorce payment.
The size of the exit bill has been a major stumbling block in negotiations with the European Union but the U.K. government is now offering Brussels a larger potential exit payment of up to 50 billion euros, or just over $59 billion.
The Belgium20 gained 0.4% and the Stoxx Europe 600 added 0.2%. France’s CAC 40 climbed 0.1% while Germany’s DAX 30 was up 2 points, or 0.02%. UK’s FTSE 100 fell 0.9%.
Asian markets ended mixed on new and possible additional major sanctions being imposed on North Korea.
Despite the jittery action, the Korean won surged to its highest level since May 2015 versus the U.S. dollar.
Hong Kong’s Hang Seng slipped 0.2% while South Korea’s Kospi 0.1% and Australia’s S&P/ASX 200 dipped 0.1%. Japan’s Nikkei rallied 0.5% and China’s Shanghai rose 0.1%.
The Mortgage Applications Index was down 3.1% for the week ending 11/24 with the average 30-year fixed mortgage rate unchanged at 4.20%.
U.S. Q3 GDP growth was revised up to a 3.3% pace, from the 3% from the Advance report, and it compares to the 3.1% rate from Q2.
Consumption was bumped down to 2.3% from 2.4% previously. Business fixed investment was boosted up to a 2.4% rate versus 1.5%, with nonresidential spending up 4.7% compared to 3.9%.
U.S. pending home sales index rose 3.5% to 109.3 in October, better than expectations for a rise of 1%.
Market Sentiment- Fed Chair Janet Yellen expects gradual rate increases to be appropriate and sees the expansion deepening and widening, with further job market gains likely to increase wage growth.
She said vulnerabilities in the financial sector appear moderate while reiterating core inflation has remained surprisingly subdued though it likely reflects transitory elements. However, she cautioned it could also reflect something more persistent.
Yellen went on to say the corporate tax rate is an important issue for Congress, but didn’t weigh in much further. On regulations, she did say the Fed is trying to tailor the rules, and it’s appropriate to look into easing some regulations on small banks.
She said stress testing is an important tool of the Fed and didn’t think the Volcker Rule shouldn’t apply to smaller banks.
On the unemployment rate, Yellen said it’s desirable that it has declined recently, but there are disparities across groups, which the Fed doesn’t have tools to address.
She was mum on the upcoming FOMC meeting, but did reiterate that policy remains accommodative and it’s important to remain on a gradual path toward a neutral rate.
The iShares 20+ Year Treasury Bond ETF (TLT) traded lower throughout the session while bottoming at $125.10. Fresh support at $125 and the 50-day moving average held with a close below the latter being a bearish signal with risk to $124.50-$124.
Lowered resistance is at $126-$126.25. RSI is back in a downtrend and is trying to hold early November support near the 45 level.
Market Analysis- The PowerShares QQQ (QQQ) traded to a high of $156.45 before declining 1.7%. We mentioned last week a blowoff rally towards $157.50-$158 could come on continued closes above $155.75-$156.
Current support is at $153.25-$153 with a move below $152 being a continued bearish development. Fresh resistance is at $154-$154.50. RSI was significantly weakened with late October support at 50 back in play.
The Technology Select Sector Spiders (XLK) traded down to $62.84 after failing resistance at $64.50-$64.75 on the open.
Early and mid-November support at $62.75-$62.50 held on the backtest with a drop below the latter signaling additional weakness to $62-$61.50 and the 50-day moving average.
RSI has rolled over with multi-month support in the 50-45 area.
All the best,
Roger Scott