Wednesday, February 20, 2019, 12:31 PM, EST
- MBA Mortgage Applications rose 3.6% vs a revised 6.9% decline the prior week.
- Most of Wall Street is watching for the release of Fed Minutes at 2pm today to better understand the Fed's posture on rates.
U.S. stocks started out in lackluster fashion this morning as equity indexes seem to have leveled off considerably this week. As we write, major indexes have turned barely positive with breadth about even. The intra-day moves have been less severe lately with most of the earnings season picture painted as stocks await developments regarding U.S./China trade.
The CBOE VIX Index is at 14.4, the lowest levels we’ve seen since September. For now, folks are ignoring Brexit discussions and weak data from Europe. Yesterday stocks started out in similar fashion and ended up with a 0.03% Dow gain. This morning stocks gained ground in Asia and Europe but U.S.markets have not followed suit as much of Wall Street’s focus today is on what the Fed will release at 2 p.m.today. Traders will be closely watching the FOMC meeting minutes this afternoon.
The minutes will probably take on more significance today that some past releases. Quick recap: You are the Fed and it’s December 2018. You have basically been stating publicly that rates will continue to be normalized via quarterly 25bp increases like you’ve been doing for over a year. The U.S.’s economic numbers are pretty strong and since your mandate is for price stability and full employment, you see no reason to change. But Mr. Market, by selling off sharply, is saying “wait a minute, you can’t just go on autopilot. We are sending you an important signal that we are seeing weakness ahead, something you are ignoring in the backward-looking data. Don’t make a policy mistake”.
So the Fed, in the market’s understanding, reversed course (to the chagrin of some who favor a Fed that does not watch the market), underpinning an eight week stock market rally. Now, market expectations are for NO rate hikes in 2019 and perhaps a rate cut. BUT...what the Fed really said was “We’ll see, we're data dependent”. It was like you said to your dad, “can we stay home from school today because of the snow?” and he said “we’ll see”. It’s possible that just as you change back into your pajamas, load up Fortnite and pop a toaster strudel into your mouth, your dad could come back and say, "OK kids, school’s open, let’s go." If the minutes today suggest that the market has gotten ahead of itself on dovish expectations, things could get interesting.
In earnings news, CVS fell over 7% pre-open following earnings results. The company beat top and bottom-line estimates but guided 2019 earnings well below consensus estimates. Other S&P 500 reporters this morning included Garmin (up over $11 to $82.20), Southern Company, (up 1.9%) and NiSource, (-2.0%). Eight of eleven sectors are higher today with Materials outperforming, followed by Energy and Technology. Three groups in the red are Consumer Staples, Healthcare and Real Estate (table below). Treasuries and the Dollar. Oil fell about 1% for its first loss in six sessions. The EIA reported record high U.S. shale production, which caused some profit taking. We also saw a few headlines about Brazil’s future production possibly weighing on the supply side. At the margin it’s a risk-on day with the leaks out of the China talks still suggesting a positive outcome.
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Brian’s Technical Take “Whats up, Doc?” Investors looking for inputs in putting together the mosaic of the market and its longer term direction may find comfort in the recent price action within the commodities market, and more specifically copper. “Dr. Copper” has long been viewed as a barometer of economic activity. It was one of the early movers in Q4’16 with a “technical breakout” in the days leading up to the Presidential election after which all risk assets surged higher. As the global slowdown unfolded throughout 2018, copper followed suit with a 23% decline in just two months’ time from June through August. It finished the year with an annual decline of 20.3% after gaining 17.4% and 31.7% in 2016 and 2017.
With the global recovery seemingly underway and risk assets recovering from a disastrous Q4, copper now appears to be joining in on the fun. This week copper has gained 4.1% for a YTD return of +10.7%. More importantly over the last two sessions it has “broken out” above two key technical resistance levels representing (i) its 200-day moving average (yellow line), now $280.60, and (ii) the $285 level which has proven itself to be a clearly defined resistance level on numerous occasions since September. Momentum is strong with the daily RSI already at the “overbought” 70 level. While economic data continues to reflect a low growth global economy, price action throughout the markets is clearly improving an suggesting an economic recovery could follow. The Dr. appears to agree.
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The SEC is reportedly considering a change to rules that will allow larger companies to "test the waters" by gauging interest from large investors before filing for an IPO. These rules already apply to emerging growth companies. The idea is to make it easier for companies to go public as the number of U.S public companies has shrunk over the years.
Nasdaq's Market Intelligence Desk (MID) Team includes:
Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.
Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.
Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.
Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).
Michael Sokoll, CFA is Associate Vice President on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.