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Market Update

Wild Week Wraps with Attention Already on Fed

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March 13, 2015

Back on the plus-side! Anyone else’s neck kinked after this week’s swings? Tugged higher by Thursday’s gains for financial shares, the Dow Jones Industrial Average (DJIA) and S&P 500 (SPX) logged their biggest gain in a month and are again positive for 2015 after surrendering year-to-date gains just a few sessions ago. Friday indicators point to cautiously higher trading although they did pull back on a soft producer price index report, as Wall Street digs in for next week’s Federal Reserve meeting and any clues on the near-term course for interest rates.

Talk about role reversal. We’re again in an alternate universe where “good” economic news sours stock trading and “bad” news, at least in the short term, is embraced. That’s based on a Wall Street presumption that spotty data will slow down the Federal Reserve’s rate-hike campaign. Longer term? Another weak retail sales number this week means that job market improvement is not translating in equal parts to a stronger consumer. And that’s still a major concern. What gives? Is pent-up demand building or is the quality of hiring and paychecks not at the level we thought?

FIGURE 1: BOUNCE FROM MULTI-WEEK LOW.

The S&P 500 (SPX) closed back above the closely watched 2050  line and now has 2077 resistance in sight. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Upside Target. Thursday’s gains did allow the SPX to close well above the closely watched 2050 line to 2065, in a rally that sent the “fear” measuring CBOE Volatility Index (VIX) down more than 8%. SPX 2077 slides in as a resistance target and there’s little reason to believe that intra-day swings will stop soon, especially if economic data remain spotty leading right up to a next week’s Fed policy meeting.

4th Drop in a Row. Despite the first rise in gasoline costs since last summer, U.S. producer prices fell in February for the fourth straight month, mainly because of a sharp drop in the volatile category of retail trade margins, MarketWatch and other news outlets note this morning. The producer price index declined by a seasonally adjusted 0.5%, not the increase that industry analysts expected. Wholesale gas prices climbed 1.5% in February, the biggest increase since last June. Yet food prices retreated 1.6% to mark the biggest pullback in almost two years. Over the past year overall producer prices have fallen by 0.6%, the first 12-month decline on record. The core rate, which strips out volatile food and energy, has risen a slim 0.7% in the same span. The Fed’s job is getting increasingly complicated.

Coming Next Week. There’s a crush of economic numbers, including leading economic indicators, but the only game in town really is the Tuesday-Wednesday Fed meeting. The Fed’s statement is due out Wednesday afternoon followed by Fed Chair Janet Yellen on the mike. Does economic data give the Fed cover to drop the word “patient” from its assessment of tighter interest rates? Friday will be a last trading day for quadruple witching expiration in futures and options which can bring added volatility to the broader market.

Good trading,
JJ
@TDAJJKinahan

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