Market Direction: BULLISH alert
issued 2/15/2018
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Will the nasdaq keep leading the stock market?
U.S. stock benchmarks ended near session lows
Wednesday as the Federal Reserve completed its second increase to benchmark
interest rates in 2018, as expected, but signaled a slightly more aggressive
plan to tighten monetary policy this year than had previously been projected.
The rate increase also had the effect of narrowing
a closely watched gap between rates of two-year and 10-year Treasury notes,
which has recently been one of a strong predictor of recessions.
What did markets do?
The S&P 500 SPX, -0.40% fell
11.22 points, or 0.4%, at 2,775.63, with only one of the benchmark’s 11 sectors
finishing in positive territory. The consumer-discretionary sector closed 0.1%
higher but losses were led by a 0.4% drop in energy and consumer staples.
Meanwhile, telecommunications tumbled 4.5%, predominantly on the back of a drop
in shares of AT&T Inc. T, -6.20% and Verizon Communications Inc. VZ, -2.89% ,
but that sector represents just 1.8% of the S&P 500’s total weight.
Meanwhile, the Dow Jones Industrial Average DJIA, -0.47% slumped
119.53 points, or 0.5%, to 25,201.20, dragged to session lows by a decline
in Boeing Co.BA, -1.83% and Caterpillar Inc. CAT, -1.77% both
closing down by nearly 2%.
The Nasdaq Composite Index COMP, -0.11% meanwhile,
shed 8.09 points, or 0.1%, at 7,695.70; the technology-laden benchmark had set
an intraday record 7,748.96 before paring those gains.
What’s driving the market?
The Federal Reserve voted to raise its benchmark
federal-funds rate by a quarter percentage point to a range of 1.75% to 2%.
Eight of 15 Fed officials now expect at least four rate hikes will be needed
this year, up from seven at the March meeting.
The Fed’s dot plot, a projection by the members of
the central bank’s expectations for rates in the future, shows the
policy-setting Federal Open Market Committee penciling in two additional rate
increases in 2018 for a total of four increases in the year. That is up from
expectations from three in the March Fed rate estimates. The median forecast
for the fed-fund rates by the end of the year now stands at 2.4%, compared with
the March forecast of 2.1%.
The 10-year U.S. government bond yield TMUBMUSD10Y, +0.25% climbed
above a psychological round-number level at 3% before moderating to 2.979%, up
0.02 percentage points, as the short-dated two-year Treasury noteTMUBMUSD02Y, +0.66% rose
to 2.578%, marking a three-week high. Those moves cut
the so-called yield curve to roughly 0.40 percentage points — its narrowest
since 2007. Bond prices fall as yields climb.
Wall Street pays attention to the difference
between short- and long-dated bonds, typically characterizing the yield curve,
because a narrowing differential leading to an inversion of that relationship
of debt maturities has been an accurate predictor of economic slowdowns.
In a news conference after the policy decision was
released, Chairman Jerome Powell said the Fed was comfortable with a return of
once-dormant inflation and emphasized the central bank’s desire to avoid a
policy error that could result in unnaturally inflating asset valuations or
pushing the economy into a recession. “If you raise rates too quickly you are
just increasingly the likelihood of recession,” Powell said.
The Fed chief also indicated that beginning in
January, the central bank’s policy updates would be accompanied by a news
conference.
Check
out: a live blog of the Fed news conference
On the data front, a measure of wholesale inflation jumped 0.5% in May,
against the backdrop of rising oil prices CLN8, +0.02% adding
upward pressure on inflation in a steadily growing economy marked by supply
bottlenecks and a growing shortage of skilled labor.
In corporate news, AT&T shares tumbled by 6.2%, representing its
largest percentage fall since Nov. 5, 2008, following a federal judge’s Tuesday
ruling that paved the way for the $85.4 billion merger with Time Warner Inc. TWX, +1.80% .
Shares of Time Warner climbed by 1.8%. The deal also helped to deliver a boost
to a number of media-related stocks, including shares of 21st Century Fox Inc.FOX, +7.48% and Walt Disney DIS, +1.90% .
What are strategists saying?
“Today’s announcement, including updates to the
post-meeting statement and to policymakers’ forecasts for growth, labor
markets, inflation, and interest rates, reinforce our expectation that the FOMC
will raise the funds rate a total of 4 times in 2018, and additional times in
subsequent years,” wrote Ken Matheny, executive director US Economics at IHS
Markit:
“The most likely date for the next Fed rate
increase is at the September 25-26 FOMC meeting,” he said.
“The headline is that the Fed’s gotten a little
more hawkish because the economy has gotten better…It’s not being driven by
runway wage inflation,” said Alec Young, FTSE Russell managing director,
referring to signs of out-of-control inflation earlier in the year that had
helped to send yields climbing and stocks tumbling.
Young said the Fed decision this time was “a
validation of the recovery.”
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)
|
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Dow
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up 599.98 points a 2.38% gain
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2/27/18
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Nasdaq
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up 440.98 points a 6.08% gain
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6/7/18
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S&P 500
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up 70.70 points a 2.59% gain
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3/13/18
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Related Link: http://www.stockmarket-direction.com/
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