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Market Update

Is Street Watching Fed’s Yellen Like a Hawk?

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February 24, 2015

Federal Reserve Chair Janet Yellen heads to Capitol Hill Tuesday for the first of two days of congressional testimony. This impending Hill appearance and the potential for more fireworks in a data- and earnings-packed week left the stock market frozen in rather lifeless trading on Monday. Yellen is in the spotlight just a few short sessions after the release of Fed meeting minutes. That means there’s a bit of pressure on her to reconcile the latest data against what some considered to be a surprisingly dovish slant for the panel. So for now? A whole lotta hurry up and wait.

S&P 500 Hovers Near Record High as Street Awaits Fed Clues

FIGURE 1: DANCING ON THE CEILING? The S&P 500 (SPX) is hugging record territory yet suspended at the top as potentially market-roiling Fed comments are on tap mid-week. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Will She Change Her Tune? Some industry economists are growing increasingly confident that Yellen could hawken-up her position just a touch, enough to offset the surprisingly dovish January policy minutes. Those minutes induced a stock market rally on their release day because they skewed expectations toward rate-hike lift-off later than the June meeting. Will Yellen use this arena to keep lawmakers and the Street on their toes? She won’t guarantee a June hike of course, or even a September trigger date, but will she keep the possibility alive? Analysts are quick to note that the “dovish” January meeting was held before the January jobs report hit. It was the strongest payrolls reading since 1997. Now, is it possible the Fed had a good sense of the data as they gathered late in January? Maybe. What’s more likely is the possibility that Yellen & Co. will increasingly keep job growth (and wage growth?) front of mind as they position for policy change.

Inter-Market Analysis. Bonds gained and yields fell yesterday, but I wouldn’t get too excited on the interest-rate front. Rollover had a lot to do with that move and so stocks and bonds unhinged to start the week. Theirs will remain an important relationship to snoop on as we head into Fed-watch. Now, we may see some action in the crude market, and by default, the stock market after oil fell back below $50 a barrel ahead of another round of possibly fat inventory numbers.

Home Delivery. A couple of potentially key housing-market barometers delivered the goods with their respective earnings reports. Those reports pack a bit more weight in a week where we’ll get plenty of big-picture housing data, too. Builder Toll Brothers (TOL) this morning said Q1 earnings were $81.3 million, or $0.44 a share, climbing from $45.6 million, or $0.25 a share, in the year-earlier period. Revenue rose 33% to $853.5 million from $643.7 million. According to management: “Momentum continues to build as we begin the spring selling season” including a 13% gain in the number of signed contracts since the start of Q2. In the home-improvement market, retailer Home Depot (HD) also beat the Street view with its latest results of $1.05 in profit per share, up from $0.73 a year earlier. The fix-it mart did note some strong-dollar drag.

Good trading,
JJ
@TDAJJKinahan

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