Market Direction Mid Week Update©

Market Direction: BULLISH alert issued 2/15/2018

FOMC minutes suggest interest rates rising...

Federal Reserve officials in their meeting in early May confirmed they planned to raise interest rates in June and were not concerned they were behind the curve on inflation.

“Most participants judged that if incoming information broadly confirmed their economic outlook, it would likely soon be appropriate for the FOMC to take another step in removing policy accommodation,” the minutes said.

Traders in the federal funds futures market see more than a 90% chance of a June rate hike.

Although inflation hit the Fed’s 2% target in the latest reading for March, for the first time in a year, officials were not convinced it would remain there for long.

“It was noted that it was premature to conclude that inflation would remain at levels around 2%, especially after several years in which inflation had persistently run below the Fed’s 2% objective,” the minutes said. Only a “few” officials thought inflation might move “slightly” above the 2% target.

“It has taken them so long to get there, with so many fits and starts, they are not quite sure it’s going to stay there,” said Michael Arone, chief investment strategist for State Street Global Advisors.

The Dow industrials DJIA, +0.21%  reversed its early losses to turn higher on Wednesday. The yield on the 2-year note TMUBMUSD02Y, +0.00%  , which is sensitive to Fed interest rate expectations, fell 5.5 basis points to 2.536%.

The dollar DXY, -0.06%   climbed to its best level in the year so far on Wednesday as the minutes supported a June hike.

Arone said the minutes were consistent with three total hikes this year although the Fed gave itself wiggle room if inflation picks up markedly.

“They didn’t take [a fourth hike] off the table,” he said.

On the trade dispute with China, officials said the possible outcome on inflation and growth remained “particularly wide,” but there was some concern the dispute would hurt business confidence.

Officials disagreed on whether the flattening of the yield curve was a reliable signal of a recession. The yield curve is the plot of government bonds of different maturities, and an inverted yield curve has often preceded recession.

Read: How the Fed decides if the economy is headed to a recession

Several officials said it would be important to monitor the slope of the curve. A few others thought that central bank asset purchases and other factors made it less reliable.

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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 599.98 points a 2.38% gain	2/27/18
Nasdaq	up 181.66 points a 2.50% gain	3/13/18
S&P 500	up 70.70 points a 2.59% gain	3/13/18

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