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Where are the Catalysts? Market Awaits Earnings Season for Direction

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April 7, 2016

(Thursday Market Open) The markets are struggling a bit for direction here as earnings season approaches, looking for a catalyst and trading on whatever the news of the day is. Weakness in the crude oil and overseas markets are bringing in a little pressure.

The dollar fell to 17-month lows against the yen early Thursday after the Fed minutes released Wednesday showed an air of caution about future rate hikes. The meeting notes helped put a charge into gold, which was up more than 1% early Thursday above $1,237 an ounce.

In Europe, banking shares and the euro fell Thursday after a European Central Bank (ECB) official said the ECB is ready to provide more stimulus if necessary, according to media reports. The rest of the European market was also lower, along with oil, helping lend a somewhat negative tone to the U.S. market at the open. Oil was down slightly, despite a surprise fall in U.S. inventories reported by the government yesterday. World crude supplies and production remain hefty, and that’s what the market seems focused on. Once again, oil and stocks appear to be coupled, just like old times.

Looking more closely at the Fed minutes, there was less of a united front among the doves, with at least two participants arguing for a near-term rate hike. Other meeting participants believed continued headwinds from the slow global economy posed too much risk. Still, the tone of hawkishness likely contributed to stocks selling off a bit after the minutes came out. The Fed’s overall message seems to be let’s wait and see the numbers, but it’s not as unified a front as it once was.

Even before the Fed minutes were released, Fed funds futures at the Chicago Mercantile Exchange (CME) predicted almost no possibility of a rate hike at the Fed’s April 26-27 meeting. After the minutes came out, futures pointed to a 3% possibility. Chances of a hike don’t rise above 50% until the December meeting, the futures market predicts. However, the minutes did show that the Fed is still expecting to raise rates twice this year. We just don’t know the timing.

As far as data, consumer credit is due out this afternoon, and wholesale inventories tomorrow morning. Things start to get more interesting next week when the main earnings season begins.

S&P 500

FIGURE 1: MAKING UP GROUND.

The S&P 500 (SPX), plotted here through Wednesday on the TD Ameritrade thinkorswim® platform, made back all of its losses from Tuesday and more, but remains below the recent high of above 2075. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Alibaba Surpasses Walmart: The Chinese economy continues to grow at a slower rate, but that didn’t stop China’s e-commerce site Alibaba from surpassing Walmart (WMT) as the largest retailer in the world in terms of merchandise sold, we learned this week from the company’s Securities and Exchange Commission (SEC) filing. Alibaba’s online trading accounts for 10 percent of all retailing in China and supports 15 million jobs, the company said.

U.S. Q1 Real GDP Growth Rate Estimate Cut to 0.4%: U.S. Q1 real GDP growth is forecast at just 0.4%, the Federal Reserve Bank of Atlanta said in a report this week, down from its previous estimate of 0.7%. The Atlanta Fed said it was cutting its forecast due to declines in the forecasts for real consumer spending growth and real equipment investment growth.

Biggest Day for Biotech Since 2009: Biotech shares popped on Wednesday, posting their largest daily gains in more than seven years after Pfizer (PFE) scrapped its plans to acquire Allergan (AGN). The Nasdaq Biotechnology Index rose nearly 6%. There was speculation that the scuttling of the deal could put both Pfizer and Allergan into acquiring moods, Fortune reported, with biotech companies potentially becoming targets. Even after Wednesday’s rally, the Nasdaq biotech index is down about 16% from a year ago.

Good Trading,
JJ
@TDAJJKinahan

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