Market Direction Mid Week Update©

Market Direction: BULLISH alert issued 2/15/2018

The FOMC Minutes halted the stock market rally... 

U.S. stocks on Wednesday ended a tumultuous session firmly lower after minutes from the Federal Reserve’s most recent policy-setting meeting sparked a fresh wave of volatility, as bond rates clambered higher and the dollar strengthened, weighing on equities.

What are the main benchmarks doing?

The Dow Jones Industrial Average DJIA, -0.67% lost 166.97 points, or 0.7%, to 24,797.78, after seeing an afternoon rally of 303 points, or 1.2%, at its session peak. The S&P 500 index SPX, -0.55% fell 14.93 points to 2,701.33, a drop of 0.6%, but was up by as much as 31.69 points or 1.2%. The Nasdaq Composite Index COMP, -0.22% meanwhile, shed 16.08 points, or 0.2%, to 7,218.23.

All three benchmarks experienced brisk reversals in the afternoon, about an hour before the regular trading session ended and an hour after the FOMC minutes were released.

Recent trading has been marked by volatility, with equities posting sharp swings in both directions. Stocks also tumbled Tuesday, quashing a six-day rally for the Dow and S&P 500.

The Dow industrials are down 5.2% for the month, attributed partly to signs of an uptick in inflation and bets the U.S. central bank won’t delay in raising interest rates further. Higher rates can lure money out of equities and increase borrowing costs for corporations.

What could drive markets?

U.S. equity gauges retreated as investors struggled to digest minutes from the Federal Open Market Committee, which pointed to a strong economy, but also the “increased likelihood” of more rate hikes ahead. The news pushed the U.S. dollar higher and sent the yield for the 10-year Treasury note TMUBMUSD10Y, -0.53% to a fresh four-year peak of 2.95%.

Wall Street has been driven by the prospect of inflation returning to the economy, and the Fed having to become more aggressive in raising rates to combat it.

What did the Fed minutes say?

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.

See: Higher inflation, tax-and-spend boom has investors looking for Fed clues

What are strategists saying?

“Rising rates, if the rates go up far enough, could be a problem not just for the stock market but for the economy,” said Bruce Bittles, chief investment strategist at Baird. That said, Bittles was doubtful that real inflation was picking up.

“Demographics are such that we have 10,000 people retiring every day and being replaced by younger employees with lower salaries,” he said. He also said lower wages outside of the U.S. would keep pressure on inflation in the U.S.

“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.

What data and speakers are driving trading?

An index that tracks U.S. manufacturers rose to a nearly 3½-year high in February and a gauge for service-oriented companies hit a six-month peak, according to IHS Markit’s flash PMI.

Separately, existing-home sales fell 3.2% in January.

In an interview on Bloomberg Television, Minneapolis Fed President Neel Kashkari said he has “hope” that inflation is picking up, and that the U.S. central bank “can’t make policy based on market blips, up and down.”

Check out: MarketWatch’s Economic Calendar

How are other assets performing?

European stocks SXXP, +0.16% finished mostly higher, while Asian markets mostly closed higher.

Oil futures CLJ8, -1.07% ended lower ahead of a supply report. The ICE U.S. Dollar Index DXY, -0.06% rose by 0.4% after the Fed minutes, and gold futures GCG8, -0.33% settled higher, gaining 0.3% to $1,335 an ounce, and extending those returns after the FOMC’s minutes.

$tockMarketDirection proprietary model is currently BULLISH. We strongly encourage you to monitor positions closely, exercise proper money management strategies and follow us at  $tockMarketDirection for ALERTS we may issue advising a change in the current market direction. Stay tuned and follow us. If you have a testimonial or comment of how this website has helped you we would like to know, email us. Share with a friend.

The all-time highs since our initial recommendation to go LONG this market. Here is how the markets have performed:

Stock Market Direction Recommendation (2/15/2018)
Dow	up 67.62 points a 0.27% gain	2/21/18
Nasdaq	up 82.21 points a 1.13% gain	2/21/18
S&P 500	up 23.22 points a 0.85% gain	2/16/18

Related Link: http://www.stockmarket-direction.com/