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Stocks Slip as Fed Dismisses Q1 Slump, Keeps Rate Options Open

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April 30, 2015

It’s been a tough few days on Wall Street with little early news on Thursday that points to a reversal of fortune. A fuzzy Federal Reserve statement may have brought inertia to the stock market but that uncertainty ultimately resulted in another lower finish for major indexes that are still flashing red early today. Importantly, the S&P 500 (SPX) clung to the 2100 line. As far as the Street was concerned, Janet Yellen and crew simultaneously downgraded economic growth and still left the door cracked for an interest-rate hike yet this year. So, what to do with that mixed message? Not much right now.

FIGURE 1: VIX STILL LOW, BUT ... The CBOE Volatility Index (VIX), the market’s “fear gauge,” remains near its lowest levels for the year but did tip above 14 intraday Wednesday for the first time in nearly two weeks.  Data source: CBOE. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Fed is Looking Out on Horizon. The Fed on Wednesday said it expects the economy will grow at a “moderate pace” despite the weak Q1 (an early Thursday report showed a skinny 0.2% GDP reading, worse than expected thanks in large part to the tug on exports from a strong dollar). The Fed hinted that a strong dollar and weak oil are holding the U.S. economy back, but likely not forever, keeping its options open for the timing of its first interest rate hike since 2006. But central bankers and investors alike can’t ignore the news, either. Data on consumer spending and industrial production was weaker than expected and the economy only added 126,000 jobs in March. Now, keep in mind that two more jobs reports and many more numbers filter in between now and the June interest-rate meeting.

Oil Already Starting to Turn? U.S. crude oil prices hit a five-month high today as the U.S. dollar slipped to its lowest since February. But it may be the supply picture that’s driving market action. News out Wednesday revealed the first crude oil stock drawdown in almost half a year at the U.S. futures hub at Cushing, Oklahoma. Crude supplies remain at a record but the active U.S. rig count continues to fall. That means eventually supplies at the nation’s storage hub could begin to significantly correct. U.S.-traded crude hit a high of $59.40 a barrel, its highest since Dec. 12. In related news, Exxon Mobil’s (XOM) shares gain early after the oil giant reported Q1 profit and sales that declined from year-ago levels, but were well above Street expectations.

Coming Next Week. Jobs, jobs, jobs. Next Friday, May 8, features the monthly employment report and most other data will likely be shoved aside for this granddaddy of reports. As we talked about above, the Fed is well aware of the slowing economy but has also hinted about pent-up hiring and wage growth that could force its hand on interest-rate policy. We’ll get a sense of the mindset of select retail investors with the latest TD Ameritrade Investor Movement Index® (IMXSM), out Monday. Refresher: IMX tracks holdings/positions, trading activity, and other data from a sample of our 6 million funded client accounts. Net buyers? Net sellers? Let’s see.

Good trading,
JJ
@TDAJJKinahan

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JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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