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Fed Fears, Crude Reality? The Waiting Continues

March 18, 2015

No one’s really afraid of the Federal Reserve. Janet Yellen and crew are getting pretty good at clueing markets in to their process. And, today’s policy meeting conclusion and follow-up press conference should be no different. Could the Fed rework its statement to make policy change sound more immediate but not imminent? That’s likely. That’s also pretty well baked in to the stock market. But a stock market that’s balancing at record highs risks getting toppled by even a hint of surprise and so for now, nail-biting patience around the word “patient.”

FIGURE 1: SMALL MOVE FOR VIX (AGAIN). The CBOE Volatility Index (VIX) has logged limited moves to start the week, even with broader stock averages chewing up the charts and even diverging in a mixed finish Tuesday. Is “market fear” really this subdued? Data source: CBOE. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Six Paragraphs and a Bunch of Dots. Almost no one believes the Fed is ready to raise interest rates just yet but financial markets are primed for a little edit to the central bank’s usually six concise paragraphs that reveal its position on current policy. It may just be a word or two that is changed (or not at all) as most Street observers believe the Fed wants to prime markets for what’s to come. Some analysts look for the Fed to slash the word “patient” from its statement but stop short of a commitment to a June hike. Rather, the Fed, especially Janet Yellen in her post-meeting Q&A (2:30 p.m. Eastern), could stress its data-dependent position. In other words the Fed wants to stay flexible. Financial markets may prefer commentary that’s a little more concrete. And, in fact, more fun might come with the financial press and their dot-plot interpretation, a Fed-generated chart that reveals long-run interest rate expectations among 17 central bankers.

Up to Our Eyeballs … Oil prices are back near $42 a barrel in U.S.-traded markets, fresh lows since early 2009 and enough to erase the gains achieved in a largely stabilizing February. If the contract settles lower on Wednesday, it’ll mark a seventh straight day of losses, the longest losing streak since July, when the lead futures contract fell for nine straight sessions. The driver? Late Tuesday, the American Petroleum Institute said U.S. crude stockpiles rose by a robust 10.5 million barrels in the week ended March 13. So far, stock investors haven't seen consumer spending respond to lower energy prices. But they have seen oil-sector stocks take it on the chin.

Tech Snapshot. Oracle (ORCL) was an after-hours and early-market gainer on substantial volume after the software concern reported adjusted quarterly earnings of $0.68 a share, about flat with the comparable quarter but enough to satisfy Wall Street. Investors could be cheering its dividend hike. But the trading climate wasn’t the same for Adobe Systems (ADBE). It’s an early decliner on moderate volume despite what on the surface appears to be decent quarterly results. Adjusted for one-time items, the company reported earnings of $0.44 a share in its fiscal Q1, compared with $0.30 a share a year ago and expectations of $0.39 according to a Street consensus. The tech company reported revenues of $1.1 billion for the quarter, compared with $1 billion a year ago and in line with analyst expectations. So, what gives? As for most earnings of late, investors have to get past currency noise. A strong dollar is dinging results. The buck, depending on who you ask, is a factor that is likely to settle over markets for upcoming quarters or a short-term drag that simply has to be ignored as investors dig in to the meat of earnings.

Good trading,

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