Chances of a Rate Hike: 99%!
Wall Street rallied higher yesterday, the S&P 500, the Dow Jones and the Russell 2000 all recording historic closing highs, while tech stocks bounced back and investors made the final adjustments in their stock portfolios before today’s interest rate announcement.
The tech sector (XLK) rose 0.9%, recovering from its 2 sharpest days of losses in almost a year. Large tech stocks, the likes of Microsoft (MSFT) and Facebook (FB) pushed the S&P 500 higher. The tech sector has prompted a 9% rally on the S&P 500 year-to-date, the latest declines in the sector igniting speculation that investors were moving funds out of the sector and into other market areas that have lagged behind this year, like financial and energy stocks.
The financial sector (XLF) rose 0.4% on Tuesday, while the energy sector (XLE) jumped 0.7%.
When push came to shove, investors rushed to capitalize on the losses at the end of last week, and stock up on the same securities but at a cheaper price. As of now, the market’s earnings multiplier has only been higher in the years 1929 and 2000. A Bank of America fund manager survey found that the percentage of investors who believe that the stock market is overpriced is at a peak, while those surveyed designate the NASDAQ as being the most overpriced. At the same time, the rebound over the last few days proves that no one wants to be the sucker who gets out too soon and misses out on the next round of gains!
In Summary for the Day: The Dow Jones rose 0.44%, the S&P 500 climbing 0.45% and the NASDAQ shooting up 0.73%. Gold ended unchanged, crude recovering with gains of 0.8%.
Two stocks that stood out in yesterday’s trading were rental car companies, Hertz (HTZ), which soared 8%, and Avis Budget (CAR), which rallied 3.3%; they benefitted from a new report that pointed to higher valuations for used cars in the secondary market. Tesla (TSLA) soared 4.7% after receiving an upgrade from Berenberg.
On the negative side, the restaurant chain, Cheesecake Factory (CAKE) fell 9.9% after releasing a Q2 sales warning.
About 6.4 billion shares changed hands on U.S. exchanges, substantially beneath the 6.8 billion average over the last 20 trading days.
Wednesday: All eyes are now turned to the interest rate announcement that will be released at 14:00 N.Y. time. Future contracts signal that a rate hike today is almost a done deal, chances placed at 99%. Investors, though, will be waiting to see whether the Fed responds to the mixed economic environment, unemployment low at 4.4%, inflation above 2%, while economic growth and retail chain sales have still come out lukewarm.
Traders will also want to see how Fed Chair, Janet Yellen, relates to the large gap vis a vis the market’s rate expectations. As of now, the Fed expects interest to hit 3% by 2019, while the market expects a far lower rate of just 1.75%.
After the release of the PPI yesterday which saw core inflation rise past Fed’s expectations to an annualized pace of 2.1%, presuming that today we get strong consumer inflation and retail chain sales figures it will be hard for Yellen to justify the Fed’s current rate forecast.
Also, before today’s rate hike announcement, investors will focus on consumer inflation figures, i.e. the CPI, which will be released at 8:30 N.Y. time, retail chain numbers likewise coming out at the same time.
Wednesday’s Hot Stocks: HRB, ALXN
IPOs: ATNX, CGBD
Have a great trading day!
|Wednesday||10:30||Crude Oil Inventories||–||Low|
|Wednesday||14:00||FOMC Rate Decision||–||High|
|Thursday||8:30||Export\Import Prices ex-ag.||–||Medium|
|HRB||H&R Block, Inc.||PM||Tuesday|
|JBL||Jabil Circuit, Inc.||PM||Wednesday|
|KR||The Kroger Co.||AM||Thursday|
Today’s Picks – Day Trading!
New York Strategy Swing
Today’s Picks – Swing “New-York Strategy
No.1 – SBUX
|Sector||Services | Specialty Eateries|
No.2 – SIG
|Company Name||Signet Jewelers Limited|
|Sector||Services | Jewelry Stores|