Nobody expected it! The Producer Price Index (PPI) was released yesterday before opening – and rose 0.5% – far exceeding earlier expectations of 0.3%. That, in essence pushed producer inflation to an annualized rate of 3.1%, as the index recorded its sharpest monthly rise in six-and-a-half years. The rise on the Producer Price Index is a preliminary signal of inflationary pressures.
With that said, despite these figures having been released before the opening bell, the market did not respond, traders, in its stead, focusing on an entirely different economic event, the Fed’s rate hike decision that was to be released at 14:00 N.Y. time.
As expected, the Fed raised interest rates by 0.25%. Over and beyond that, the Fed removed certain words that we had come to expect in prior statements; in other words, the Fed expunged language stating that it would keep interest rates low to spur the economy. The rate decision did not include any particular surprise but it did manage to prompt 3 large market movements yesterday.
The market is yet to decide whether the Fed decision is negative; at the same time, considering that the market is technically stretched, the direction the market eventually chose was on the downside, the S&P 500 closing off 0.32%, at its daily low. We’re not talking about a heavy sell-off, but it certainly was a change in the market’s behavior pattern to date, the Fed’s decision far from being a reason for celebration.
It’s important to recall that if the market had not risen linearly over the last few weeks, it’s reasonable to assume that the response would have been otherwise. The indexes, indeed, failed to fall against the backdrop of the G7 meeting, and the historic summit between the U.S. and North Korea. At the same time, the Fed’s decision gave the bears a trading opportunity, yesterday, that was too good to pass by!
The market’s breadth was atrocious, with just 2,750 shares recording gains, 4,200 falling on the day. At the same time, the retreat was minor, with over 400 stocks having recorded new 52-week highs before the price retreat.
Even though the market closed slightly down yesterday, the NASDAQ still succeeded in achieving a new historic high, especially thanks to the surge in the stock of Netflix (NFLX). That was one of the stocks that saw active movement in day trading live, stock trading chat rooms abuzz with feverish activity. Live trading at its best, the stock continued its meteoric rise. Furthermore, FAANG stocks, far from impressing us with large moves, traded enough in the green at the beginning of the day for the NASDAQ to tick off another winning day!
In Summary: The big spin yesterday was a complete reversal of the familiar trading pattern, the market recording losses on a Fed Day. This is a new type of response that shouldn’t be ignored – and which could signal a headwind that leads to problems down the road. As of now, it would be too soon to rush to negative conclusions. The story for the meantime is simple. The market, on a technical level, is trading at overbought levels, and corrected slightly.
Thursday: Today’s trading is likely to continue to be affected by the Fed decision, alongside a number of additional economic figures that will be released today. As is the case weekly, today at 8:30 initial unemployment claims will be released. Retail chain sales figures, as well as import and export prices will be released today.
The ECB is expected to make a monetary policy announcement of its own today, and will command a not insignificant amount of attention – especially after the ECB already signaled that it would use the meeting at hand to consider ending its quantitative easing policies.
Have a great trading day!
Today’s Picks – Day Trading!