The action is certainly much more volatile than it has been for a long time. While indexes booked a mild gain for the week it wasn’t on the back of 0.1% to 0.3% moves up four of five days a week like we’ve seen in the very unusual period we just came out of. The Federal Reserve minutes usually don’t provide much in the way of fireworks but Wednesday when the quote of an “increased likelihood” of more rate hikes ahead hit the tape, markets didn’t enjoy it. This was read by the market as 4 rate hikes in 2018 rather than the expected 3. However Fed speakers rushed out in speeches to assure markets the punch bowl won’t be taken away so quickly.
Minutes of the Jan. 30-31 Federal Open Market Committee meeting showed that officials saw a stronger economy than at the end of 2017 and that more rate increases were in the offing. The strengthening “increased the likelihood that a gradual upward trajectory of the federal-funds rate would be appropriate.” The FOMC altered its message to point to “further gradual increases,” emphasizing its desire to resume rates increases in 2018, according to the minutes.
“I think for the most part everything in the minutes was fairly benign,” said Bruce McCain, chief investment strategist at Key Private Bank. “The problem is we haven’t resolved if there’s real inflation working its way through the system. We have no predisposition that we’ve cleared that hurdle,” he said.
Then on Friday more dovish stuff from the Fed.
In its semiannual monetary-policy report, the Fed signaled that it saw broad improvement in the U.S. economy and pointed to a pickup in inflation toward the end of last year, but didn’t suggest that a rise in prices warranted more aggressive policy action. The Federal Reserve gave little hint in its latest report to Congress that it’s prepared to raise U.S. interest rates more aggressively in 2018, reflecting uncertainty among senior officials about how fast inflation will rise this year.
For the week the S&P 500 gained 0.6% and the NASDAQ 1.4% – much of that coming in the afternoon Friday.
Here is the 5 day weekly “intraday” chart of the S&P 500 …via Jill Mislinski.
The most expensive city in the world is not New York or San Francisco. In fact, those didn’t even make the top 5. Go east young man…
The week ahead…
The market will get the first close up look at new Fed head Jerome Powell in front of Congress. I’d expect a male version of Janet Yellen with lots of punch bowl.
The government will be “back to work” so talk of the infrastructure bill should heat up. I recall when Obama proposed such a thing and was elected a lot of infrastructure stocks got bid up, even if in the end if was much ado about nothing. I wouldn’t be surprised to see the same this time around. Especially if any infrastructure company announced #blockchain!
Short term: We have some nicely defined ranges here on the S&P 500 and NASDAQ – the latter looking stronger of the two. If indexes break out to the upside out of these wedges it looks like that is the end of the correction.
The Russell 2000 has an interesting situation going on where a shorter duration moving average (20 day) is looking to cross below a longer duration (50 day) moving average which is usually negative. But who knows in the Trump market.
The NYSE McClellan Oscillator looks to be back in good shape.
Long term: If this is the end of the correction, it was but a minor blip in our parabolic weekly chart.
Charts of interest / Big Movers:
Tuesday, Walmart (WMT) shed 10.2% after its fourth-quarter adjusted earnings per share missed forecasts. The stock posted its biggest one day percentage drop since Jan. 8, 1988.
MiMedx (MDXG) tumbled 40% after the biotechnology company said it was delaying the release of fourth-quarter and full-year 2017 earnings to conduct an accounting review.
Wednesday, Devon Energy (DVN) sank 12% after it reported fourth quarter results that missed expectations and gave a downbeat outlook.
The next day, Chesapeake Energy (CHK) surged 22% after the company topped earnings estimates for the fourth quarter.
Also Thursday, Roku (ROKU) plunged 18% in heavy trading after the streaming media company issued a disappointing outlook late Wednesday, along with better-than-expected quarterly earnings. Even with the drop, the stock has come a long way since November!
Wayfair (W) sank 23% after the online home retailer reported a wider-than-expected fourth-quarter loss.
Woof! Friday, Blue Buffalo Pet Product (BUFF) soared 17.2% in after General Mills (GIS) announced an $8 billion buyout of the company.
Have a great week and we’ll see you back here Sunday!