US Markets

Stocks Rise as Investors Eye Fed Meeting

The primary driver of the market in these continued rough waters is the potential action of the Federal Reserve.

  • NASDAQ Composite +0.71% Dow +0.21% S&P 500 +0.21% Russell 2000 +0.67%
  • NASDAQ Advancers: 1374 / Decliners: 950
  • Today's Volume (vs. Friday) -2.12%
  • Crude -0.51%,Gold -0.18%

Market Movers

  • June US Empire Manufacturing (8.6) vs. consensus +11.5. Jun New Orders (12.0) vs +9.7 in May. May Empire reading was +17.8
  • Treasury Secretary Wilbur Ross reiterates that a major trade deal is unlikely to emerge from a possible meeting between President trump and Chinese President Xi Jinping at the Group of 20 meeting in Osaka
  • Pfizer will buy Array BioPharma for $10.6 billion. Stifel will acquire a unit of Canadian based GMP Capital Markets for $52 million
  • In addition to the Fed, the Bank of Japan and the Bank of England are also holding policy meetings this week
  • June US NAHB Housing Market Index 64 vs. consensus 66. May was 66

Charlie’s Commentary

While last week was full of market concerning headlines and data points, the three major indexes still managed to finish the week in positive territory. Tensions with Iran bubbled to the surface as two oil tankers were attacked in the Gulf of Oman. Trade concerns remain on heightened alert as China maintained that it will not be pressured into a deal with the US. Earnings concerns remained front and center as Broadcom lowered its guidance due to the increasing sanctions the US is putting on major customer Huawei. Global growth remained front and center as signs of further cooling of business activity in China showed May industrial output and investment figures continuing to contract. Despite all of this, the Dow, S&P 500 and Nasdaq are all up more than 4% for June through Friday’s close. The major indexes also posted back-to-back weekly gains. 

The primary driver of the market in these continued rough waters is the potential action of the Federal Reserve. The Federal Reserve is scheduled to hold a two-day meeting on monetary policy beginning Tuesday. The central bank is now not expected to make any policy changes this week as recent economic data, particularly May's stronger than expected retail sales have provided a glimmer of strength within the economy. Investors will now turn their focus to look for clues about potential rate cuts later this year (more likely July or September). Market expectations for a rate cut in July is at 86.3%, according to the CME Group’s FedWatch tool. Investors are also pricing in a 70.1% chance of another cut in September.

The mergers and acquisition world is percolating again today, with two deals announced. Pfizer will buy Array BioPharma for $10.6 billion or $48 a share in cash to gain its promising work fighting cancer particularly with a drug that could limit or end the use of Chemotherapy for some patients. The other deal of the day was in the financial services world. Stifel Financial Corporation has agreed to buy GMP Capital Inc.’s advisory and trading business  for approximately $52 million in all cash. The deal will give Stifel a presence in Canada.

On the economic calendar this morning, the markets were caught a little flat footed by a New York Federal Reserve’s Empire Manufacturing Survey that fell by 26.4 points, the largest monthly decline on record since October of 2016 adding to signs that tariffs are taking their toll on the economy and with manufacturers in particular. This surprising weakness increases the likelihood that Fed policy makers will be more inclined to lower benchmark interest rates probably during late July. The National Association of Home Builders Market Index fell two points to 64 in June, the first decline this year suggesting that lower mortgage rates are failing to give the housing markets a boost as property prices remain out of reach for many potential buyers.

In the commodity pits, oil is in retreat mode on general demand concerns stemming from a global economic slowdown. China’s weak industrial output number on Friday in conjunction India implementing retaliatory tariffs on a number of US  goods is creating concern by oil producers on future demand. Also weighing on prices was a dim outlook for growth in 2019 projected by the International Energy Agency on Friday. Gold eased off last week’s 14 month high as investors await some clues on future interest rates from the Fed meeting that begins tomorrow.

Sectors are mixed this morning as Communications (+0.92%), Real Estate (+0.76%) and Energy (+0.56%) lead while Utilities (-0.75%), Consumer Staples (-0.46%) and Materials (-0.11%) lag.

Economic Calendar

Date Time Event
Monday 8:30 a.m. June Empire Manufacturing Survey
Monday 10:00 a.m. June NAHB Home Builder Survey
Tuesday FOMC Meeting Begins
Tuesday 8:30 a.m. May Housing Starts
Wednesday 2:00 p.m. FOMC Decision
Wednesday 2:30 p.m. Powell Press Conference
Thursday 8:30 a.m. W/O 6/15 Weekly Jobless Claims
Thursday 8:30 a.m. Q1 Current Account
Thursday 8:30 a.m. June Philly Fed Index
Thursday 10:00 a.m. May Leading Indicators
Friday 9:45 a.m. June Flash Manufacturing PMI
Friday 9:45 a.m. June Flash Services PMI
Friday 10:00 a.m. May Existing Home Sales

Sector Recap 

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Brian’s Technical Take

Markets are likely to be in a holding pattern until Wednesday’s FOMC when pundits will be parsing through every word of the committee’s statement and following Q&A with Chairman Powell. While we may not see any action such as a 25bps rate cut, at the very least the market monster wants to hear dovish commentary and a signal for a rate cut by the next meeting at the end of July.    

Since the end of the trade truce in early May and the return of volatile risk-off price action in equities, safe haven treasuries have been bid driving yields sharply lower.  While the short end of the curve has fallen faster on expectations for a rate cut or two, the long 10-year yield declined 38bps in May before bottoming at a 20-month low, 2.06%, in the first week of June.  

Momentum was deeply oversold at the early June low with the daily RSI “troughing” at 18.6, its lowest level since … December 2000.  Over the ensuing two weeks the long yield has been consolidating sideways with very little relief rally to speak of.  The eight month trend lower and poor momentum favors new lows in the not too distant future, however Wednesday’s FOMC will likely determine where we go from here.  

While last week’s retail sales data came in better than expected and the prior month was revised higher, US PMI’s have re-coupled with the global data and is trending lower towards the 50 level.  Also, today’s NY Empire Manufacturing data plunged 26.4 points to minus 8.6.  This is its biggest decline ever on record, and now its lowest level since October 2016

Markets are currently pricing in a 21% probability for a rate cut this Wednesday.  If no action is taken, I suspect new 52-week lows for the long yield will follow.

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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.

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