Stocks recovered from opening weakness to move higher on Tuesday. The selloff early in the session was driven by headlines that Iranian warships had fired on and seized a U.S. cargo vessel; subsequent reports clarified that the ship was actually the Marshall Islands-flagged Maersk Tigris and that no American citizens were aboard.
Investors got another dose of drama near the close as earnings from Twitter Inc (NYSE:TWTR) were mistakenly leaked early. While earnings beat estimates, revenues were weak. Shares were halted before finishing with a loss of 18.2%.
In the end, the Dow Jones Industrial Average gained 0.4%, the S&P 500 gained 0.3%, the Nasdaq lost 0.1%, and the Russell 2000 gained 0.5%.
Telecoms gained 1.5% and were the day’s best performers thanks to a 12.2% gain in Windstream Holdings (NASDAQ:WIN) on an upgrade from Nomura while AT&T Inc. (NYSE:T) gained 2.3%. The latter was included in my recent post on the rally in wireless stocks.
United Parcel Service, Inc. (NYSE:UPS) gained 3.4% thanks to a focus on better profit margins in its international business and better pricing on its ground business. That pushed up the May $98 UPS calls recommended to Edge Pro subscribers on Wednesday to a gain of nearly 130%.
Consumer discretionary stocks were a drag, with Coach Inc (NYSE:COH) down 6.3% on soft U.S. comps while Whirlpool Corporation (NYSE:WHR) dropped 7.1% on a top- and bottom-line miss. Apple Inc. (NASDAQ:AAPL) fell 1.6% on some profit taking after reporting strong quarterly results and impressive iPhone/iPad shipments.
Microsoft Corporation (NASDAQ:MSFT) gained 2.3% as it pushed above its November closing high helped by positive sell side commentary. Edge Pro subscribers closed their May $43 MSFT call trade today for a gain of nearly 450%.
Looking ahead, the market will once again be captive to every word and detail coming out of the Federal Reserve after the latest policy announcement is released Wednesday afternoon. Investors will be searching for clues on the pace and timing of the Fed interest rate hikes — the first since 2006 — as the central bank prepares to start normalizing monetary policy.
The futures market has already shifted their expectations, effectively taking a June hike off the table as September is penciled in as the soonest the Fed will kick off its first rate hike campaign in the wake of some disappointing economic data.
But after years of demonstrating a hesitance to jostle a still-fragile recovery — one that is finally showing signs of wage gains for working Americans — the market is increasingly wondering if the Fed holds off until early 2016.
For those keeping score at home, a dovish statement would highlight any or all of the following:
- Concerns about the drag from the dollar’s rise; something that Fed officials talked up ahead of their pre-meeting media blackout.
- Fears that job gains could slow given the March jobs report.
- Concern that the slowdown in Q1 GDP growth, with the Atlanta Fed’s GDPNow real-time estimate tracking at just 0.1%, is more than just weather-related.
Societe Generale economist Aneta Markowska is looking for two rate hikes this year — in September and December — with another five increases next year. This is in line with the Fed’s own estimates, which to be honest shown a record of being too optimistic. Both Markowska and the Fed’s rate path prediction are well ahead of where the market is, which she readily admits.
She’s looking for three potential catalysts to keep a September rate hike on track: A strong April jobs report, growing evidence of wage inflation, and a solid April retail sales report.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters.
