Connect The Dots

Connect the dots.  I’ve said it before, it’s all about the dots and, of course, the Federal Reserve that creates them.  Markets spent the majority of yesterday’s session in the green led by tech and growth oriented stocks and then came the Federal Reserve’s rate announcement.  The Fed announced a 25 basis point hike in the Federal Funds target bringing it up to 2.25%, which was largely expected.  The market initially responded to the release by rallying, however the rally quickly faded by the end of Powell’s speech with all major stock indices closing in the red.  What happened?  Well the rate hikes were expected, but you know if you are a regular reader of my note that it is not so much about the rate release but rather the text, the dots, and press conference that interests traders the most.  Let’s start with the text.  The FOMC released a policy statement which usually says something like: economy is doing well, unemployment is low, inflation is under control, we (the Fed) are monitoring things carefully.  Yesterday’s release said the same thing, kind of.  Actually the statement was curiously missing the words “accommodative policy”, which have been in the last several statements.  The removal of this term means that the Fed believes that rates are no longer in a stimulative range, but possibly in a neutral or slowing one.  Now for the dots.  The dot plot displays each voting member of the FOMC’s projections for the Fed Funds rate in the future.  This is an important tool because the dots are the actual projections from the folks who vote on the policy.  Of course, none of it is set in stone because things change and the actual policy may change as well.  What is really interesting on the dot plots is the change in projections from meeting to meeting.  If you look at the plot I have attached, you will see that rates are expected to be higher by the end of the year but one voter who projected them to be below 2% in June now moved up above above 2%.  This represented a positive change for rates, which can be interpreted as being hawkish (albeit in a very minor way).  Finally, let’s talk about, well, the talk.  Foremost, Chairman Powell is a confident speaker and is known for staying on point.  His message was mostly consistent with the policy statement and all of his testimony given in the months leading up to the meeting.  He spoke of the good economy and felt that inflation was under control.  He spoke of an independent Fed that was not concerned with Administration bullying (and they got some of that too in a Trump press conference).  He also mentioned a growing concern about tariffs and their effects on the economy.  Ah, the wild card, just in case we got this all wrong.  So in summation, I would say it is steady as she goes with a slightly hawkish bent.  Both the Dow and S&P500 retraced yesterday (that means went down in technical talk) and the S&P will now get support at 2900, while the Dow is in the middle of a gap with no real support (see charts 4 and 6 in my attached daily chartbook).  Despite the pullbacks, the indices are still in good shape in light of their recent upward moves.  The Russell 2000 however did not fair so well in yesterday’s session.  It closed below the support it was getting at 1700 at levels it hasn’t seen since mid August.  The index will get support at its 1676 Fibonacci line.  The R2K’s mid term momentum is trending down which puts the index in danger of de-trending (see bottom panel of chart 7 in my attached daily chartbook).  Though the index is still constructive, we will watch it closely over the next few sessions.  Interest rates traded in a curious fashion in response to the release trading down for the day.  Ten year yields closed at their session lows at 3.04% causing the yield curve to flatten somewhat to 22 basis points.

Today, we start off with a wave of economic releases.  Quarter over quarter GDP is expected to come in at 4.2%, personal consumption is expected to have grown at 3.8%, the quarterly core PCE growth is predicted to come in at 2%, and finally durable goods orders are projected to have grown at 2.0%.  Yeah, that’s a lot to digest.  Amidst the drama on Capital Hill and fallout from a curious Presidential press conference, traders will continue to try and understand the implications of yesterday’s policy release and weigh all of the important numbers being released this morning. Tomorrow we get the important core PCE deflator amongst others, so today’s trade and commentary should prove interesting, to say the least.  Just remember that the Fed raises rates until something breaks – that is what they do.  Many say that this time is different, but I would argue that it is always different.  Just connect the dots.

daily chartbook 2018-09-27

IMPORTANT DISCLOSURES.

Muriel Siebert & Co., LLC is an affiliated broker/dealer of the public holding company, Siebert Financial Corporation, which also owns Siebert AdvisorNXT, LLC. Siebert AdvisorNXT, LLC is a registered investments advisor (RIA) with the SEC and with state securities regulators. We may only transact business or render personal investment advice in states where we are registered, filed notice or otherwise excluded or exempted from registration requirements. Investment Advisor products are NOT insured by the FDIC, SIPC any federal government agency or Siebert’s parent company or affiliates.

You are being provided this Market Note for general informational purposes only. It is not intended to predict or guarantee the future performance of any security, market sector or the markets generally. This Market Note does not describe our investment services, recommendations or market timing nor does it constitute an offer to sell or any solicitation to buy. All investors are advised to conduct their own independent research before making a purchase decision. This Market Note is to provide general investment education and you are solely responsible for determining whether any investment, security or strategy, or any other product or service, is appropriate for you based on certain investment objectives and financial situation. Do not use the information contained in this email as a basis for investment decisions. You should always consult your investment advisor and tax professional regarding your investment situation before investing. The charts and graphs are obtained from sources believed to be reliable however Siebert AdvisorNXT does not warrant or guarantee the accuracy of the information. Any retransmission, dissemination or other use of this email is prohibited. If you are not the intended recipient, delete the email from your system and contact the sender. This is a market commentary, not research under FINRA Rule 2210 (b)(1)(D)(iii) and FINRA Rule 2210 (c)(7)(C).

© 2021 Siebert AdvisorNXT All rights reserved.