Steady Climb

Steady climb.  Equity markets continued their recovery yesteday with a steady positive day of trade in the midst of mixed news.  Stocks cheered as US – Chinese trade talks ended in an upbeat fashion as both sides laid the framework for further talks and an ultimate resolution.  Despite the steady flow of negative Government shutdown news culminating in a Presidential tantrum, traders continued to take the opportunity to buy stocks.  In fact, even stocks that missed earnings yesterday rallied which is a good sign that negative market sentiment may be behind us.  Later in the session, the Federal Reserve released its minutes from last month’s FOMC meeting.  According to the minutes some members were even in favor of skipping the December rate hike although the members ultimately voted unanimously for the raise.  Additionally the language conveyed a more measured approach going forward as members felt that the lower inflation environment provides them with the ability to be patient. The Fed is concerned with recent market volatility, a slowdown in global growth, and other unnamed economic hazards (most likely the trade war).  Depending on how you approach things, the minutes could be perceived as being positive or negative.  On the one hand, it is clear that rate hikes would be slower so if you believe that the bull market is being held back by higher interest rates, the somewhat dove-ish talk is positive for stocks.  On the other hand, the Fed is clearly concerned with slower growth and economic headwinds, so if you believe that the bull market is being supported by a strong global economy, the committee minutes is negative for stocks. Despite the dichotomy stocks responded positively to the release.  The S&P500 rose by +0.41%, the Dow Jones Industrial Average went up by +0.39%, the Russell 2000 traded up by +0.86%, and the NASDAQ 100 climbed by 0.75%.  The continued strong showing by the small cap index is a positive sign that the outlook is improving for equities.  All of the major indexes remain risk off despite recent gains.  The dove-ish/bearish Fed minutes caused bonds to rise slightly yesterday leaving 10 year yields at 2.71% and the 2/10 yield curve steepened slightly to 15 basis points.  The minutes also caused the dollar to weaken further as it approaches a key support level not seen since last October (see chart 13 in my attached daily chartbook).  Crude rocketed above the $50/barrel level despite evidence of increasing supply lending further strength to the energy sector and equities in general (see chart 11 in my attached daily chartbook).

Today we get the weekly Initial Jobless claims number and it is expected to show 226k new claims down from last week’s 231k.  Today will also feature a 30 year bond auction and its results may give traders another factor to gauge the bond market’s take on the mixed Fed message.  Speaking of messages, today will also feature lots of Fedspeak starting with Chairman Powell who will be followed by Bullard, Evans, Kashkari, and Clarida.  There should be no shockers but the steady stream of quotes hitting the tape will certainly be watched carefully in the session ahead.  Please call me if you have any questions.

daily chartbook 2019-01-10