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Fed's Yellen testifies

Stocks Climb in Anticipation of Yellen Testimony, Stronger European Markets

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February 10, 2016

(Wednesday Pre-Market) Stocks are scrambling for modest gains early Wednesday after a rough start to the week. The Street is pulling some juice from a rally in Europe and stabilization for global oil prices, with many participants hopeful that Federal Reserve Chair Janet Yellen’s trek to Capitol Hill yields more guidance on the course for interest rates. Bullish traders hope she’ll quash any remaining talk of a possible March rate hike.

Gold is back down today but on Tuesday struck a seven-month high as global uncertainty sent traders scampering into the relative safety of bullion.

Volatility maintains its grip on this stock market, where wide intraday moves (figure 1) can sometimes leave an ugly path in its wake. Discouraged bulls may need to see the broader market hold gains for more than one day to be convinced of a short-term bottom.

Today’s congressional appearance is really Yellen’s first major public Q&A since the December rate-hike decision. Yellen, whose written remarks were released before the open, is likely to face questions from Congress about recent weaker economic numbers. The Fed had forecast four rate hikes this year, but soft job growth in January, as well as tepid performance by overseas markets and the continued overhang of falling oil prices have market watchers extremely skeptical about a March rate hike, and less certain of rate hikes after that. Yellen’s testimony begins at 10 a.m. Eastern.

Early gains in the stock market reflected some traders’ hopes that Yellen will signal a more accommodative policy, though she’s not expected to make any clear indications about the Fed’s plans. They’ll also be interested in hearing if Yellen addresses recent market volatility and whether the U.S. faces danger from turmoil in China’s economy. Additionally, they’ll look to Yellen for a read on inflation. While falling energy prices continue to provide savings for American consumers, core prices —which exclude volatile food and energy —have remained flat or begun to rise. 

S&P 500 stock chart

FIGURE 1: STEADY AS SHE GOES?

The S&P 500 (SPX), plotted here through Tuesday on TD Ameritrade’s thinkorswim® platform, steadied late in Tuesday’s trading day after a sharp early drop. However, the index remains near multi-month lows. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Disney Delivers, But … ESPN’s performance, marred by cable cord-cutting, continues to color everything Disney (DIS) right now. DIS killed on earnings but the stock is bruised owed to ESPN. This is somewhat reflective of the market’s mood overall. A year ago, flecks of bad news were ignored in favor of a brighter big picture. In this climate, a little negative news can sully a whole report. Though the bulk of earnings season is long past, market watchers will see several key companies report on Wednesday, including technology and consumer names. Some of the major earnings data will come from Cisco Systems (CSCO), Pioneer Natural Resources (PXD), Tesla Motors (TSLA), Whole Foods (WFM), HubSpot (HUBS), and iRobot (IRBT).

Oil Rebounds Overnight. While oil prices remained near 12-year lows and fell sharply on Tuesday, there was some bounce overnight, with Brent futures climbing 2% to above $31 a barrel and WTI futures also making a 2% climb, up to $28.60. The strength came amid continued hope for a production cut by OPEC members and possibly by Russia. Both Iran and Russia made hints early Wednesday that the countries might be amenable to working with OPEC on a supply reduction, but, as has been the case throughout recent weeks, nothing was certain.

FANG Worries: While the overall stock market is down more than 9% so far this year, technology stocks, including the so-called FANG names—Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Alphabet (GOOG, GOOGL)—continue to underperform the broader market. The S&P 500’s technology components are down 12% so far this year, and FANG stocks are down 17%. The question is whether recent strength in U.S. wages, combined with possible continued Fed policy accommodation, could boost spending, benefitting these closely watched stocks. 

Good Trading,

JJ

@TDAJJKinahan

economic report schedule

FIGURE 2: ECONOMIC AGENDA

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

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