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Cautious Stock Trading Ahead of Fed Meeting Minutes

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November 18, 2015

A choppy stock session could be in the works after a weaker-than-expected housing construction reading knocked some of the air out of Wall Street’s early gains and pushed up the benchmark 10-year Treasury yield to 2.292%. The dollar gained, as did oil prices.

The stock market’s tone was already cautious. Analysts said weaker global equities markets fell in part because of the uncertainty sparked by news of a police raid in Paris on suspected terrorists. While the recent spate of tragic attacks has so far had limited direct impact on stock trading, the evolving scope of the attacks and the response does invite a degree of uncertainty for stock and commodities markets and can be added to a list of market drivers.

With the housing data raising fresh questions about economic resilience, attention swings this afternoon to more potential clues on the interest rate response in the Federal Reserve’s meeting minutes.

SPX stock chart

FIGURE 1: SKETCHY STREAK.

The S&P 500 (SPX), charted here on the new-look thinkorswim® platform, has dropped in eight of the past 10 trading sessions. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Housing Starts Decline, Permits Rebound. Not a great housing sector headline but a deeper dive into the report shows a different picture, perhaps? Construction on new U.S. homes declined by 11% in October to an annual rate of 1.06 million, marking the lowest level since the early spring. That’s below Wall Street expectations. Housing starts in September were also revised down to a 1.19 million annual rate from 1.21 million, Commerce Department data show. Yet permits for new construction—a sign of future demand—rose 4.1% to an annual rate of 1.15 million. Permits for single-family homes, which account for about three-quarters of the housing market, rose 2.4% in October to an annual rate of 711,000. That's the highest level since the end of 2007.

Clues from Fed Minutes? Investors are also awaiting the release later today of the Federal Reserve’s October meeting minutes, a meeting that revealed a slightly widening gap between doves and hawks. It’s likely that today’s document could be scrutinized for clues on the December meeting. The CME Group’s FedWatch Tool, calculated based on pricing in the Fed funds futures market, shows traders are pricing in about a 68% shot for a rate hike in December according to market pricing. That’s down slightly from a week ago but up from the 35% odds priced in right after the Fed took a pass on an October rate change but issued a statement entertaining the thought of a December hike. Traders in this market see a 72% chance for a hike in January and a 84% shot for a hike in March.

Target Hits its Mark. Target (TGT) topped Wall Street’s expectations with an increase in Q3 sales over the year-ago period. With the release, the retailer claimed its merchandise changes are paying off, helping to ease some concern for overall consumer spending heading into the key holiday shopping season. Shares—down about 3% this year—gained early Wednesday. TGT’s report follows one from Wal-Mart Stores (WMT) earlier this week that showed increased domestic sales but lower profits as the cost of its shuffle to help attract more shoppers bit into the bottom line.

Good Trading,

JJ

@TDAJJKINAHAN

economic report calendar

FIGURE 2: ECONOMIC AGENDA.

This week’s U.S. economic report calendar. Source: Briefing.com.

JJ Kinahan

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

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