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Market Update

Stocks Waver as Some Wonder if a Patient Fed is an Uncertain Fed

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April 9, 2015

Wednesday marked another day of intra-session swings but little change for major stock averages once the final bell clanged. Is Thursday off to a similar start? So far, yes. Early stock indicators are lower, which may surprise anyone who checked in overnight. In the darkness, screens lit up when U.S. stock futures tracked higher alongside Hong Kong’s sixth straight winning session which included a 6% gain at one point Thursday.

The release of Federal Reserve meeting minutes initially induced a cold sweat among stock bulls Wednesday but cooler heads prevailed, leaving the S&P 500 (SPX) still slightly positive on the year at 2081.90. The bottom line still seems that the Fed will continue to rely on data from reports. And on cue, a jump in the latest weekly jobless benefits count out this morning reminds us how spotty the data can be. Plus, with the bulk of earnings reports just starting to hit—kicked off with a revenue miss from Alcoa (AA)—a wait-and-see attitude appears to have taken hold on Wall Street. And so, the market churns on.

FIGURE 1: POSITIVE FOR THE YEAR. The S&P 500 (SPX) was jostled in Wednesday’s Fed- and earnings-driven session but ultimately ended in the green, tipping it just positive for the year. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Data-Dependent. The notes from the Federal Open Market Committee’s March meeting showed several members supported a June rate hike (that’s what ruffled the stock bulls), but also made clear that others thought a rate hike wouldn't be warranted until later in the year as low oil prices and the strong dollar would likely hold inflation down. My takeaway from the Fed minutes? They seem to be happy with the direction of employment but until inflation heads over 2% they’re reluctant to do anything with interest rates.

Rough Start? Alcoa can be a closely watched stock for its unofficial launch of earnings season and as a barometer of global growth given its aluminum dominance.  AA swung to a Q1 profit on revenue growth in large part from divisions that make parts for the automotive and aerospace markets and a boost from stronger aluminum prices. Still, the revenue figure could not satisfy a fickle Street, sending shares lower. This is a theme we hope to see avoided this earnings season. And by “we” I mean anyone rooting for the economic recovery to pick up speed.

Looking Ahead. As we look out to next week, earnings season heats up courtesy of the financial sector. Count JP Morgan Chase (JPM) and Wells Fargo (WFC) among those set to report on Tuesday. No shortage of potentially market-moving news that day because we’ll also see data on producer inflation and the ever-important retail sector—which can confirm (or not) that the economy is firing on all cylinders.

Good trading,

JJ

@TDAJJKinahan

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