Both indexes finished off highs of the session as the minutes of the Federal Reserve meeting left a sour taste in some traders’ mouths. The S&P 500 gained 0.02% while the NASDAQ added 0.50%. Personally, I don’t buy the idea that any action is happening in June. Just like I didn’t believe we were going to see “4 rate hikes in 2016” last December when it was the prevailing theory.
The Federal Open Market Committee’s April meeting minutes said, “Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen, and inflation making progress toward the Committee’s 2 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June.”
After the Fed minutes’ release, Fed funds futures were signaling a 27% chance of a June rate hike, versus 16% in the morning and 4% last week, according to RBS.
“The hawkish tone of today’s minutes can be interpreted as more … comforting out of the FOMC that either economic data is benign or getting better,” said Jerry Villella, global investment specialist in Dallas for JPMorgan Private Bank.
“Today’s comments could lead to increased volatility in financial markets over the next several weeks as investors adjust their portfolios and react to incoming economic data,” Michael Sheldon, chief investment officer at Northstar Wealth Partners, said in an email. He noted a June hike “is certainly not a sure thing but the odds appear to be growing.”
No real change from yesterday’s discussion on the indexes.
Despite the flattish action in the S&P 500, the NYSE McClellan Oscillator fell relatively substantially. It is now in “oversold” status.
That’s a significant spike in the 10 year yield…
… and in the dollar.
Financials (KRE & XLF) also liked the news.
“Although the market is going to be upset that the Fed is turning more hawkish, the biggest beneficiary of higher rates will be financials,” said Karyn Cavanaugh, senior market strategist at Voya Financial. Banks can charge higher interest rates as interest rates tick up.
Yet ANOTHER lousy day in retail – today it was Target’s (TGT) turn to get beaten by the ugly stick. The company reported a lower-than-expected 1.2% increase in comparable sales, while net revenue declined to $16.2 billion, mainly due to the sale of pharmacy and clinic business to CVS Health. Guidance was below expectations, with Target noting its second-quarter view “has been tempered by the recent slowdown in consumer trends.” The firm said it still believes its prior earnings guidance range “is achievable.”
At least there was Lowe’s (LOW). I guess one thing people don’t buy online en masse are flowers, shovels, lumber, etc. The reported earnings and revenue above expectations, and the same-store sales increase of 7.3% was well above the consensus estimate of a 4.4% rise.