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Market Update

Fed Fears Quieted But Dollar Does Some Damage

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February 25, 2015

Back for more today with the smooth-talking Janet Yellen. Her tone on Tuesday pushed stocks up to—ho hum—another record high for the Dow Jones Industrial Average (DJIA) and S&P 500 (SPX). Only health care sat out the SPX’s advance. The NASDAQ Composite tagged a 15-year intra-day high, extending its rally to an 11th consecutive session (figure 1). The charts were redrawn (our technical friends are eyeballing SPX 2122 as near-term resistance) after the Federal Reserve chief signaled she and colleagues aren’t inclined to raise interest rates before mid-year. Yellen heads back to Capitol Hill today, this time for a fresh round of questions from a House panel.

FIGURE 1: STREAKING.

The NASDAQ Composite logged an 11th uninterrupted higher close on Tuesday, leaving the tech-studded index at 15-year highs. Data source: NASDAQ. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Perky on the Economy. The Fed’s Yellen extolled to lawmakers a host of signs of a strong domestic economy. She reserved some caution for slow(ish) wage growth, global ripples, and persistently low inflation that the Fed still considers to be transitory. The key to Tuesday’s message was her assurance that, yes, at some point a rate rise is coming, but given current conditions, the Fed's accommodative policy is "appropriate” and will likely be altered only on a meeting-by-meeting basis. Yellen largely repeated the Federal Open Market Committee (FOMC) statement that a rate hike is unlikely "at least" over the next couple of meetings, stating that the Fed can remain "patient" for the time being. She added that the FOMC will change guidance prior to raising rates as conditions warrant, though the change will not necessarily mean that liftoff is imminent.

Dollar Drag. Hewlett-Packard (HPQ) is down earlier and could bring headwinds to the broader tech space (that’s you, high-flying NASDAQ Composite) after revenue missed Street expectations. HPQ also cut guidance for 2015. The culprit? A strong dollar’s sting on global profits.  Quick refresher for anyone who does not always follow forex trading: thinkorswim® ticker $DXY measures the dollar against a basket of currencies. This ticker has gobbled up chart real estate, hitting 94.47 Tuesday, up from 88 as recently as December 22, 2014 (figure 2).

US-dollar-index-up-sharply-compared-to-year-ago

FIGURE 2: BUCK’S BRAWN. The U.S. dollar index measures the dollar against a basket of major global currencies. DXY has consolidated in recent days but remains up sharply compared to this time last year. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Welcome Home.  Actually, it’s housing-sector data that’s welcome on Wall Street these days, as traders try to get a sense of consumer spending on life’s biggies. Today brings a snapshot of new home sales. The report follows upbeat housing-sector earnings this week but comes on the back of a consumer confidence measure that hit the low end of industry expectations. Will the real consumer please stand up!

Good trading,
JJ
@TDAJJKinahan

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