Little traction for stocks early today on the heels of a volatile session on Wednesday, when the indexes wiped away early losses to close sharply higher. The Federal Reserve, as expected, clipped its pledge to remain “patient” about raising rates from its statement but followed up that action with largely dovish comments. To stock bulls that signaled a slower increase in interest rates than Wall Street foresaw just a few months ago. Yet on sobering Thursday, the bulls are pretty quiet. In response to the Fed’s go-slow indication, the beefy dollar dropped against its rivals, allowing the euro up to $1.10 late Wednesday before pulling back anew to near $1.07. What’s interesting is the bond market once again tightened its not-normal correlation to stocks, with demand for fixed income keeping a benchmark 10-year Treasury yield below 2% even in the face of, yes eventually, higher interest rates.
S&P 500 (SPX) bulls may find 2100 a tough wall to climb (figure 1) and churning here could prove healthy in the long run. Just like 2050 had been a major line to secure a bounce, we could spend some time trying to firmly clear 2100 absent fresh stock drivers outside what’s been the usual drill of weak oil and expectations for gradually higher interest rates.
Pretty Clear. Sorta. The stock market was given plenty to chew over in Fed chief Janet Yellen’s post-meeting briefing. No exact mention of timing, of course, but Yellen did fuel Wednesday’s rally when she said: “Let me emphasize, however, that the timing of the initial increase in the target range will depend on the committee’s assessment of incoming information. Today’s modification of our guidance should not be interpreted to mean that we have decided on the timing of that increase. In other words, just because we removed the word patient from the statement doesn’t mean we’re going to be impatient.” According to the Fed chief, policy is likely to remain highly accommodative to support continued progress toward Fed objectives of maximum employment and 2% inflation.
All-Important Wage Growth. Yellen and crew also continue to closely watch wage growth and have seen greater slack in the job market than would have been expected a few months ago. The Fed evidently thinks unemployment can fall to 5% or slightly less without stoking inflation. In its latest economic forecast, the central bank cut its long-term estimate of the U.S. unemployment rate to a range of 5% to 5.2%. That’s down from 5.2% to 5.5% in December.
On Trend. The number of people who applied for new unemployment benefits in mid-March remained below the closely watched 300,000 threshold, according to data out early Thursday. Initial jobless claims edged up by 1,000 to a seasonally adjusted 291,000 in the week ending March 14. New claims have tracked below 300K for the second straight week after spiking to a 10-month high of 325,000 at the end of February in what looks to have been weather-related pattern break. According to Street economists, jobless claims tend to hover at or below 300K when hiring is increasing quickly. Over the past 12 months, the U.S. has created an average of 275,000 jobs each month, the fastest hiring clip in 15 years, according to MarketWatch. Of course, connecting that hiring to robust consumer spending has been an altogether different story so far.