Stocks jumped out of the gate this morning when the CPI report came in cooler than expected, lifting hopes that the fed will be cutting interest rates sooner rather than later, but a funny thing happened on the way to the Fed meeting - they actually sounded more hawkish than expected. There was a lot of volatility, as expected, but in the end stocks mostly held onto the big gains, although the Dow was down slightly. Bond yields and the dollar fell on the cool report and that helped bonds, small caps, and the I-fund participate.
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It was an interesting reaction - not to the CPI report, but after the Fed. The CPI report was just what investors wanted to hear. Inflation is cooling, but it is still above the Fed's 2% target so they don't feel like their jobs is done yet.
The Fed basically hinted that they are there if needed, but it may not be time yet to cut. Yes, the probability of a rate cut in September increased, but we came into this year with the prospects of 6 to 7 quarter point rate cuts, and now the Fed is saying just one. Maybe none. Maybe two, but one is what they're are saying. So the post Fed market was a little more choppy and the indices lost some ground, but as I said, most of the morning gains held.
As for the rate cut probabilities for the September meeting, after the CPI report was released it shot up, but it moved modestly lower after the Fed spoke. Still the chances of NO rate hike by September went down from 47% to 37% yesterday, despite the Fed talking about just one cut.
The year over year CPI inflation reading was 3.3%. For some context, the 12 month year over year ending in January was 3.1%, so you can see why the Fed may not have been so excited about the progress. The 10-year yield is basically where it was when that January CPI was released in mid-February.
A closer look at the current action on the 10-year Treasury Yield shows another test of the 200-day EMA after a sharp move lower. The decline yesterday says to me that the bond market doesn't believe the Fed will only cut once this year. And the head and shoulders pattern "suggests" lower yields are eventually coming.
The dollar was also down but it closed at its highs of the day and it started to back and fill the large open gap created at the open (red). The weak open was enough to fill in another gap (blue) from earlier in the month, before the bounce back started.
As the day wore on, some indices lost steam and we saw the advancing / declining share volume almost flat on the the NYSE. The Nasdaq was stronger and that's almost always because of the highly traded big caps tech stocks, and Apple was up another 3% with nearly 200 million shares traded by itself. It's daily average is closer to 60 million.
Following up on the Transports and the Financials, not much has changed. We saw some big rallies in these charts but they keep getting swatted back down at key resistance. And like the head and shoulders pattern on the 10-year yield chart above, these both have bearish looking head and shoulders patterns suggesting possible break downs.
What doesn't have a bearish head and shoulders pattern is the S&P 500. It actually had a bullish inverted head and shoulders breakout yesterday, as you'll see down below.
The PPI Report (Producer Price Index) comes out this morning so we could have more fireworks, especially if it tells a different story than the CPI's cooler inflation data.
The S&P 500 (C-fund) broke through major resistance yesterday, opening a big gap along the way. It closed off the highs but it was an emotion day with the Fed and CPI, so the wide swings wasn't unusual. The key here is whether the old resistance can now hold as support. Trading volume has been picking up recently.
The DWCPF (S-fund) broke above key resistance as well, but it wasn't breaking to new highs like the S&P 500. It's just trying to keep from continuing to slide lower in that channel, and yesterday helped. This could be the trigger that starts a rally in this lagging fund, but there is an open gap below 2000 that could draw it back down, and it would have to go back below its 50-day EMA to get there. This chart still looks tentative but it's much better than it looked the day before.
The EFA (I-fund) gapped up and the early weakness in the dollar had it back up near the recent highs already, but it settled down after the emotional day of trading. Still, a gain of over 1% is a good thing and the chart is technically sound.
BND (bonds / F-fund) was up sharply but, yada, yada, yada, open gap and a negative reversal looks like everything else - good, but suspect. The bond market seems to think interest rates are going lower, even though the Fed was not so sure.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Daily Market Commentary Archives
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Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
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It was an interesting reaction - not to the CPI report, but after the Fed. The CPI report was just what investors wanted to hear. Inflation is cooling, but it is still above the Fed's 2% target so they don't feel like their jobs is done yet.
The Fed basically hinted that they are there if needed, but it may not be time yet to cut. Yes, the probability of a rate cut in September increased, but we came into this year with the prospects of 6 to 7 quarter point rate cuts, and now the Fed is saying just one. Maybe none. Maybe two, but one is what they're are saying. So the post Fed market was a little more choppy and the indices lost some ground, but as I said, most of the morning gains held.
As for the rate cut probabilities for the September meeting, after the CPI report was released it shot up, but it moved modestly lower after the Fed spoke. Still the chances of NO rate hike by September went down from 47% to 37% yesterday, despite the Fed talking about just one cut.
The year over year CPI inflation reading was 3.3%. For some context, the 12 month year over year ending in January was 3.1%, so you can see why the Fed may not have been so excited about the progress. The 10-year yield is basically where it was when that January CPI was released in mid-February.
A closer look at the current action on the 10-year Treasury Yield shows another test of the 200-day EMA after a sharp move lower. The decline yesterday says to me that the bond market doesn't believe the Fed will only cut once this year. And the head and shoulders pattern "suggests" lower yields are eventually coming.
The dollar was also down but it closed at its highs of the day and it started to back and fill the large open gap created at the open (red). The weak open was enough to fill in another gap (blue) from earlier in the month, before the bounce back started.
As the day wore on, some indices lost steam and we saw the advancing / declining share volume almost flat on the the NYSE. The Nasdaq was stronger and that's almost always because of the highly traded big caps tech stocks, and Apple was up another 3% with nearly 200 million shares traded by itself. It's daily average is closer to 60 million.
Following up on the Transports and the Financials, not much has changed. We saw some big rallies in these charts but they keep getting swatted back down at key resistance. And like the head and shoulders pattern on the 10-year yield chart above, these both have bearish looking head and shoulders patterns suggesting possible break downs.
What doesn't have a bearish head and shoulders pattern is the S&P 500. It actually had a bullish inverted head and shoulders breakout yesterday, as you'll see down below.
The PPI Report (Producer Price Index) comes out this morning so we could have more fireworks, especially if it tells a different story than the CPI's cooler inflation data.
The S&P 500 (C-fund) broke through major resistance yesterday, opening a big gap along the way. It closed off the highs but it was an emotion day with the Fed and CPI, so the wide swings wasn't unusual. The key here is whether the old resistance can now hold as support. Trading volume has been picking up recently.
The DWCPF (S-fund) broke above key resistance as well, but it wasn't breaking to new highs like the S&P 500. It's just trying to keep from continuing to slide lower in that channel, and yesterday helped. This could be the trigger that starts a rally in this lagging fund, but there is an open gap below 2000 that could draw it back down, and it would have to go back below its 50-day EMA to get there. This chart still looks tentative but it's much better than it looked the day before.
The EFA (I-fund) gapped up and the early weakness in the dollar had it back up near the recent highs already, but it settled down after the emotional day of trading. Still, a gain of over 1% is a good thing and the chart is technically sound.
BND (bonds / F-fund) was up sharply but, yada, yada, yada, open gap and a negative reversal looks like everything else - good, but suspect. The bond market seems to think interest rates are going lower, even though the Fed was not so sure.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Daily Market Commentary Archives
To get weekly or daily notifications when we post new commentary, sign up HERE.
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
