Waiting on Fed Assurance?

Markets did gap lower at the open, but bears could not get any follow-through as markets closed inside the previous candle in the large-caps.  Meanwhile, the bulls kept running (like the bears didn’t even exist) in the QQQ. The tech names were led by new all-time high closes from AMZN, AAPL, FB, and MSFT.  On the day the SPY closed down 0.70%, the DIA down 1.05%, and the QQQ up 0.72% to another all-time high.  The VXX gained almost 5% to 31.27 and the T2122 dipped very slightly to 98.21.  10-yr. bond yields fell to 0.82% and Oil (WTI) resumed its rally, climbing to $38.73/barrel. 

The FOMC announcements, statements, and press conference will be key today.  The Fed skipped its normal forecasts in March.  So, today will be the first look into their revised projections of where the economy and interest rates are headed for the remainder of the year and into 2021. (They last published forecasts in late 2019.)  Chairman Powell’s statement will also be scrutinized word-by-word as some traders look for bad news (to get more stimulus) and others hope for reassurance that everything will soon be back to normal.

With the Fed taking center stage today, Asian Central Banks got a reprieve.  Emerging market central banks had been under intense pressure with fund outflows and a lack of trickle-down help from China hurting their economies.  (The Chinese People’s Bank of China resisted major stimulus plans of the kind the Fed, ECB, and BOJ all undertook.)  However, reports released today say a recent reversal of funds flow (back to seeking risk), especially in South Korea and Thailand, has caused Asian currencies to stabilize and given those Central Bankers the luxury to wait on the Fed to lead the way.

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On the Virus front itself, the global headline numbers are 7,343,977 confirmed cases and 414,129 deaths.  In South America, Peru surpassed 203,000 confirmed cases (significant for a country with less than one-tenth the population of the US).  In Brazil, a Justice on the Supreme Court has ruled the government must publish its coronavirus data (despite their President’s decision to stop publishing it).  As a result, Brazil added 33,000 cases to their previous count.  In France, the govt. has announced a $17 billion bailout package for its airline industry, with about a quarter of that going to the national carrier Air France. 

In the US, we now have 2,045,741 confirmed cases and 114,151 deaths reported to date.  NYC reported a record low positive test rate Tuesday, with only 1% of all tests processed coming back positive.  However, CA reports a surge in hospitalizations and confirmed cases in counties where just under half the state’s population reside. Elsewhere, AMZN announced plans to open their own testing labs to avoid delays when they implement their plan to test all employees every 2 weeks. (A move that comes in response to employee push-back over lax testing).   

Overnight, Asian markets were mixed with all the indices not far from the flat line.  However European stocks are lower across the board again so far today.  At 7:30 am, US futures are mixed and closer to flat then has been normal recently.  The large-caps are just in the red while the NASDAQ is looking to a half percent gap higher again. 

The major economic news for Wednesday is May Core CPI (8:30 am), Crude Oil Inventories (10:30 am), May Federal Budget Balance, Fed Interest Rate Projections, FOMC Economic Forecast, FOMC Rate Decision, and FOMC Statement (all at 2 pm), and the FOMC Press Conference (2:30 pm).  The only major earnings reports on the day are CHS, GES, RRGB, and UNFI before the open.

The bulls have been on a tear for weeks now.  However, in the large-caps we may see a continuation of the pause waiting on more reassurance from the FOMC.  That said, it does not look like the NASDAQ bulls are ready to slow down yet.   With the Fed on tap this afternoon, I would not be surprised by a drift waiting on the statement or presser. Don’t bet against the trend unless you’re doing it to hedge, but remember we are also very extended and overdue for a rest.  So, stay focused on the short-term chart and lock in those profits as you go.  As always, above all don’t chase or predict.

Ed

Trade ideas for your watchlist and consideration: CHWY, ZS, MS, USO, BAC, WDC, KO, WFC, EPD, BHC. Trade your plan, take profits along the way, and smart. Also, don't forget to check for upcoming earnings. Finally, remember that the stocks/ETFs we mention and talk about in the trading room are not recommendations to buy or sell.

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