U.S. markets were weak throughout much of Wednesday’s session as Wall Street awaited the afternoon Fed update on interest rates and digested the latest tariff and trade news with China.

President Trump indicated he would leave tariffs on China for a substantial period of time to make sure that if a deal with China was made, that China lives by the deal.

The major indexes rebounded and made a run into positive territory after the Fed left rates unchanged and signaled no hikes this year.

The mixed finish was slightly encouraging for a possible return to higher highs with volatility at a neutral level.

The Russell 2000 stumbled 0.8% after trading to an intraday low of 1,535. Near-term and upper support at 1,535-1,520 held with a close below the latter and the 50-day moving average being a slightly bearish development.

The Dow dropped 0.6% following the midday pullback to 25,670. Fresh and upper support at 25,750-27,500 was breached and failed to hold by a nickel with a move below the latter signaling weakness.

The S&P 500 was lower by 0.3% following the backtest to 2,815.

Upper support at 2,825-2,800 failed to hold into by a point with a move below the latter being a slightly bearish signal.

The Nasdaq climbed 0.1% despite testing an intraday low of 7,674.

Fresh and upper support at 7,675-7,625 was stretched but held with a move below 7,600 bearing caution.

Communication Services and Energy paced sector winners after rising 0.9%. Real Estate and Utilities gained 0.5% and 0.3%.

Financials led sector losers after tanking 2.1% while healthcare and Industrials dropped 0.7%.

Global Economy – European markets closed lower across the board after British Prime Minister Theresa May formally requested a delay to Brexit with the March 29th deadline being extended until June 30th.

Germany’s DAX 30 tumbled 1.6% while the Belgium20 and the Stoxx 600 Europe sank 0.9%.

France’s CAC 40 was down 0.8% and UK’s FTSE 100 fell 0.5%.

UK inflation rate ticked up in February, but stayed close to January’s two-year low.

UK Consumer prices rose 1.9% in February, after a 1.8% increase in January.

London house prices fell by an annual rate of 1.6% in January.

Asian markets settled mostly on the downside following news Chinese negotiators have been pushing back on a trade agreement because the U.S. has not sufficiently assured them that tariffs will be lifted if a deal is made.

Hong Kong’s Hang Seng was off 0.5% and Australia’s S&P/ASX 200 dipped 0.3%. South Korea’s Kospi slipped a half-point, or 0.02%, and China’s Shanghai dipped a third-point, or 0.01%. Japan’s Nikkei nudged up 0.2%.

MBA Mortgage Applications rose 1.6%, accompanied by a 0.3% rise in the purchase index and a 3.5% jump in the refinancing index. The average 30-year fixed mortgage rate declined 9 basis points to 4.55%.

The FOMC left the funds rate unchanged at 2.25%-2.5% and dropped the 2019 dots to zero from 2 previously, and left one on for 2020.

The Fed expects to continue tapering the balance sheet runoff and will taper it in May, and end it in September. The Fed downgraded its outlook on growth, and noted it slowed in Q4 2018.

The FOMC Forecast revisions revealed larger downward growth and inflation revisions than analysts had assumed, leaving forecasts that now undershoot most market forecasts, perhaps to justify the more dovish Fed funds rate outlook that policymakers may have felt compelled to deliver.

Though 11 of 17 estimates for the 2019 now show no rate hike for 2019, the downward revisions for the central tendencies and ranges revealed the more modest trimming analysts had assumed.

The 2019 central tendency for the funds rate was narrowed to 2.4%-2.6% from 2.4%-3.1%, as expected, and the 2020 central tendency was trimmed to 2.4%-2.9% from 2.9%-3.4%, also as expected.

Analysts saw a big trimming in the 2019 GDP central tendency to 1.9%-2.2% from 2.3%-2.5%, versus a 2.3% consensus estimate. Future GDP estimates were actually raised.

The Fed lowered its 2019 central tendencies for PCE chain price figures, to 1.8%-1.9% for the headline and 1.9%-2% for the core.

The 2019 jobless rate central tendency was lifted with the lower GDP path to 3.6%-3.8% from 3.5%-3.7%.

Market Sentiment – Fed chairman Jay Powell said growth is expected to be solid in 2019, although slower than 2018. He added that inflation remains near their 2% goal and noted that it may be some time before the outlook calls for a change in policy.

Powell went on to say the U.S would feel slower global growth while adding that he sees weakening in Europe, but not a recession.

He said that U.S. tariffs are small relative to the size of the economy, but noted that he has been hearing a lot of concern on tariffs.

Powell was positive on the outlook with most FOMC participants still seeing growth in the 2% area. Economic fundamentals are still very strong, but the Fed’s projections suggest more of an erosion in growth.

He stated the global economy was a tailwind ahead of 2018, but the slowing in European economies, and China, have turned to a headwind.

The Fed said there are a range of things impacting the Chinese economy, including factors specific to China, though authorities have taken many steps to support growth, but Powell expects it to improve ahead.

In Europe, there’s been some weakening, but the Fed is not seeing a recession there. Tariffs may be a factor in China’s slowing, but Powell believes deleveraging may be more the cause.

He declined to comment on the White House’s GDP projections, which are a full point higher than the Fed’s projections.

The iShares 20+ Year Treasury Bond ETF (TLT) snapped a 2-session slide after soaring to a high of $122.85.

Fresh and lower resistance at $122.50-$123 was cleared and held following the breakout from an 8-session trading range.

New support is at $122-$121.50.

Market Analysis – The Russell 3000 Index ($RUA) closed in the red for the 2nd-straight session after kissing 1,658 on the intraday low.

Current and upper support at 1,660-1,645 was breached but held and levels that served as previous resistance from mid-February.

A close below the latter would be a slightly bearish development with risk towards 1,630 the 200-day moving average.

Lowered resistance is at 1,670-1,685 with a close above the latter getting 1,700 back in play.

A golden cross is in the process of forming with the 50-day moving average on track to clear the 200-day moving average on renewed strength.

RSI is in a downtrend with near-term support at 60.

A close below this level would be a bearish signal for additional weakness towards 55-50 with the latter representing the month low. Resistance is at 65-70.

The Spider S&P Retail ETF (XRT) extended its losing streak to 2-straight days following the backtest to $43.82. Upper support at $44-$43.50 was breached but held.

A close below the latter opens up risk towards $43 and mid-January support.

Near-term resistance is at $44.50 and the 50-day moving average. A move back above these levels would keep a 10-session trading range in play.

RSI is in a slight downtrend with support is at 40.

A move below this area would be a bearish development with downside risk towards 35-30. Resistance is at 45-50.

All the best,
Roger Scott.