February 8, 2018.
By any measure volatility yesterday on the Dow was pronounced, threefold the mean daily swing over the last year, but compared to the two days prior, yesterday was barely a whimper. Tech shares were off 1.4%, Apple tumbling 2.1%. The industrial and financial sectors supported the market, energy stock, though, falling 1.7% as oil couldn’t maintain its traction.
Mark Arbeter, until recently, Standard & Poor’s Equity Research Chief Technical Strategist, said that there’s a “better than 50/50 chance we do some testing of the lows.” Arbeter added, “Currently, we are running into resistance from the 50-day average at 2,720. There has been some technical damage and usually that needs to get repaired. In other words, I think a ‘V’ bottom is unlikely.” And what should you do when others panic? In Arbeter’s words, “Use the panic day(s) to increase equity exposure if you have not done so already. Anywhere near the 2,600 region, and if we break that, down at the 200-day (moving average) near 2,540.”
One of the phenomena worth noting is the U.S. dollar’s renewed strength in the wake of yesterday 2-year budget deal in the Senate. The deal supported the dollar as fear had grown about another potential faceoff between the Democrats and Republicans with the federal government possibly closing down this Friday. That, though, has been averted as of now. The ICE U.S. Dollar Index, which stacks up the dollar against six major foreign currencies, gained 0.8%. In Germany, an agreement reached between Chancellor Angela Merkel’s Christian Democrats and the Social Democrats propped up the Euro early in the session. To form the government, SDP members still have to vote on the coalition agreement; if rejected, we’ll be likely to see new elections in Europe’s largest economy, something that would likely put a dent in the Euro. At the same time, in Brussels, the Euro bloc raised its GDP growth forecast this year to 2.3% from 2.1%, the forecast for 2019 also raised. Like always, too much growth prompts fear of inflations, central banks worldwide carefully monitoring lending rates as a means of curtailing inflation.
As for Fed, when will the next hike be? After fears grew after the recent market downturn, it seems that the Fed is on track with its plans for a March hike. Two Fed heads dropped hints in that regard, Dallas Fed President, Robert Kaplan, noting that volatility in the market and corrections can be healthy, Chicago President, Charles Evans, noting that he saw inflationary pressure building, something that would also support a tighter Fed schedule. Like always, rate hikes tend to crimp growth, making businesses’ borrowing rates higher and thus curtailing capital investment projects. Likewise, with interest rates higher, investors may prefer CDs and other instruments over stocks, meaning that if newly sworn in Fed Chief, Jerome Powell raises rates too high, we could see a showdown between him and Trump, who likes to take credit for the market’s meteoric rise. There’s been a history of U.S. Presidents meddling in the affairs of Fed Chairmen, some successfully, and others, not. Nixon, the last to do so in dramatic fashion, succeeded in persuading Fed Chairmen, Arthur Burns, to cut rates, which may have led to high inflation. We’ll see if it comes to that in a Powell-Trump showdown and if it does, whether the former sticks to his guns.
Thursday’s Hot Stocks: VVV, YUM, IACI, TSLA
Today’s Economic Calendar: Weekly jobless claims will be released at 8:30 and chain store sales at 10:00. Then at 10:30 be primed for the EIA Natural Gas Report, with the Fed Balance Sheet and money supply numbers to be released at 16:30.
|Monday||9:45||PMI Services Index||53.3||Medium|
|Monday||10:00||ISM Non-Mfg Index||56.2||Medium|
|Wednesday||8:30||William Dudley Speaks||–||Medium|
|Wednesday||10:30||Oil Inventories||6.8 M barrels||Low|
|Thursday||10:00||Chain Store Sales|
|Thursday||8:30||Jobless Claims||235 K||Medium|
|Friday||8:30||Wholesale Trade||0.2 %||Medium|
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