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Stock Market in Limbo as Fed Decision Up in the Air

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August 5, 2015

The stock market looks to snap a three-day slide on Wednesday, untethering for now from a deteriorating Apple’s (AAPL) grip on the broader market (figure 1). Disney (DIS) soured the tone after its revenue flop but had so far not tugged the rest of the market with it.

The dollar index and Treasury yields dipped, but stock futures held sizable gains, after the ADP report revealed a weaker-than-expected showing in private-sector hiring last month. That number could invite additional volatility as investors position for Friday’s closely watched Labor Department employment snapshot and for next month’s Federal Reserve interest rate decision.

SPX-Below-2100

FIGURE 1: ANOTHER CLOSE BELOW 2100.

The S&P 500 (SPX) closed another session shy of the closely watched 2100 line, weighed down by Apple’s (AAPL) drag and weakness in energy shares. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Is Rate Hike a “Lock”? Atlanta Fed President Dennis Lockhart said in a speech it would take "significant deterioration" in the U.S. economy for him to NOT support an interest rate hike in September. Some analyst notes were quick to point out Lockhart's centrist stance on the Federal Open Market Committee. Those observers maintain Lockhart tends to reflect the consensus. But, not so fast. Federal Reserve Governor Jerome Powell said Wednesday on CNBC's "Squawk Box" that the labor market continues to be strong, but he has not made up his mind yet on whether interest rates should be raised next month for the first time since 2006.

Private-Sector Hiring Miss. The Automatic Data Processing (ADP) report tracking private-sector hiring trends came in below expectations, pushing some economists back to the drawing board for their Friday payrolls report forecast. ADP said 185,000 new jobs were filled in the private sector, below Wall Street economist expectations for 215,000. Meanwhile, industry economists on average forecast 223,000 nonfarm payrolls in the government's employment report Friday. That report is one of the final key pieces of the economic puzzle the Fed will review before it September meeting.

Dollar Hurts Disney. Disney (DIS) shares are lower (in fact indicating the biggest one-day price drop in its history) after an important revenue miss in its late-Tuesday report. The House of Mouse kept up its streak of beating Street projections with earnings but investors may care less about that this time around given the obsession with revenue misses this quarter. Disney warned that a strong dollar will “adversely impact” operating income in 2016. ESPN, its revenue engine, reported modest subscriber losses. But some analysts tie that to an increasing number of Americans cutting the cable cord, a trend they see continuing.

Good trading,
JJ
@TDAJJKinahan

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