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Market Update

Can Upward Momentum Continue? Street Higher With Fed Speakers Ahead

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March 18, 2016

(Friday Pre-Market) With the end of the quarter approaching, U.S. stock indices have reached equilibrium for the year, trading at or near where they finished 2015. Strength continued early in the day Friday as a trio of Fed speakers loomed, oil continued to rise and market volatility fell to new lows for the year.

With the Fed meeting over, Fed speakers are back on the agenda and likely to get some attention from the markets. Fed speakers on Friday include Federal Reserve Bank of New York President William Dudley at 9 a.m. ET, Boston Fed President Eric Rosengren at 11 a.m. ET, and St. Louis Fed President James Bullard this afternoon. It seems unlikely that any of the Fed speakers would stray much from the company line just two days after a Fed policy statement.

Crude oil, which reached highs for the year on Thursday above $40 a barrel in the U.S., continued to hustle higher early Friday, nearing the $41 mark. Oil’s been on the rise for more than a month. U.S. oil futures have climbed about 5% this week. Almost all the commodities have been rallying based on the weaker dollar.

Today marks quadruple witching, when several futures and options contracts expire the same day. Sometimes quadruple witching can raise volatility as traders close out their expiring positions.

Despite that, VIX futures, which gauge volatility, are now below 15 and at their lows for the year. A lot of fear is out of the market, but that doesn’t mean it’s time to be complacent. Actually, here at the end of the quarter, with stocks back to where they started the year after a turbulent few months of downs and then ups, it might be a good time for investors to take a hard look at their portfolios and consider re-adjusting.

On the data front, March consumer sentiment is due today at 10 a.m. ET. Expectations are for a slight rise to 92.2, from 91.7 the previous month. No other major economic reports are on tap Friday, and the coming week is light as well.

S&P 500

FIGURE 1: SPX NEARLY EVEN FOR YEAR.

The S&P 500 (SPX), plotted here through Thursday on the TD Ameritrade thinkorswim® platform, closed about three points from becoming even for the year to date. The Dow Jones Industrial Average (DJIA) finished Thursday positive for 2016. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Major Indices Back to Even or Near Even For Year: Thursday’s rally put the Dow Jones Industrial Average (DJIA) into the green for 2016, and the S&P 500 Index (SPX) closed within three points of its Dec. 31 settlement. At its low for the year just over a month ago, the SPX was down more than 11 % in 2016, so it’s been a quick turn-around. If the DJIA closes higher Friday, it would be the sixth day in a row that the index has moved up. Technical resistance for the SPX is at around 2056.

Market Expectations Now Seem Aligned With the Fed: The Fed’s policy statement released Wednesday was one factor behind Thursday’s stock market strength. After confusion over the last few months about the number of interest rate hikes that would occur in 2016, market expectations and the Fed now seem better aligned. Both the Fed and Fed funds futures now predict two rate hikes this year. Previously, the Fed had forecast four rate hikes while futures were forecasting two. The Fed seems to have found a good middle ground in its efforts to balance the effect of weaker overseas markets with stirrings of momentum in the U.S. economy.

Earnings Season Coming Into Sight: With the Fed meeting behind us, focus is shifting to the earnings season. One earnings report, from shipping company FedEx (FDX), came out late Wednesday, and it helped give the market a boost. FedEx beat analysts’ estimates, helping reinforce impressions of economic strength, particularly among consumers. Transports were among the best-performing sectors in the market on Thursday, with FedEx rising nearly 12%. The materials and industrial sectors also moved higher on the day.

Good Trading,
JJ
@TDAJJKinahan

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