Stocks Mostly Higher as Fed Leaves Rates Unchanged

Advertisement

U.S. equities held near the unchanged line again on Wednesday as the Federal Reserve held off on further interest rate hikes. The Fed described the balance of risks to the economy as equalized, resulting in a lowering of rate hike expectations for March. Left unmentioned were a recent increase in inflation and the threat of further price pressures from wages, shelter and possible fiscal stimulus from the Trump Administration.

The only acknowledgement of the post-election “reflation” theme was a throwaway statement that sentiment appeared to have improved. The Fed has clearly taken a step back, possibly out of fear of being politicized by making a sudden hawkish shift under President Trump. Stocks largely shrugged as other catalysts — such as new policies out of the White House and the flow of fourth-quarter earnings results — currently take center stage.

In the end, the Dow Jones Industrial Average gained 0.1%, the S&P 500 inched up a fraction, the Nasdaq Composite added 0.5% and the Russell 2000 lost a fraction. Treasury bonds were weaker, the dollar was slightly stronger, gold lost 0.3%, and oil rallied for a gain of 2%.

Healthcare stocks led the way with a 0.7% gain, followed by technology, also up 0.7%. The gain in tech was helped by a 6.1% gain in Apple Inc. (NASDAQ:AAPL) shares after the tech giant reported a return to growth for its iPhone business after three straight quarters of declines. Chipmaker Advanced Micro Devices, Inc. (NASDAQ:AMD) climbed 16.3% on better-than-expected revenues driven by graphic processor sales.

Yield-sensitive utilities and REITs were the laggards, down 1.7% and 1.2%, respectively, on Treasury bond weakness.

After the close, Facebook Inc (NASDAQ:FB) gained 2.3% in extended trading after reporting better-than-expected earnings of $1.41 per share, 10 cents ahead of estimates. Revenues rose 53% from last year, also ahead of estimates, thanks to some very impressive user metrics.

If the gains hold, the rise will be enough to push FB up and over its October high into new record territory — continuing a relentless four-year uptrend and representing an 18% rise out of the late December low for the social media titan.

FB was helped by intense user engagement leading up to and following the contentious U.S. presidential election. Daily active users increased 18% from a year ago in December. Monthly active users increased 17% to a record 1.86 billion.

To put this into perspective: As of this moment, more than quarter of the world’s population logs into Facebook at least once a month.

Stepping back, stocks still look vulnerable here on a technical basis after plunging back below the Dow 20,000 threshold after a much-heralded rise above that benchmark last week.

Sentiment is shifting amid a shift in focus from potential positives related to Trump (such as tax reform) to negatives (from the perspective of big business) such as a clampdown on immigration and “chaos” amid a fight with Congressional Democrats over everything from cabinet picks to the legality of his executive actions.

Checking in with Jason Goepfert at SentimenTrader, he warns the island gap we’ve just witnessed — that is, a breakaway gap to a new high followed relatively quickly by a gap back down leaving unfilled space on stock charts — is widely viewed as a negative formation since it shows an “emotion shift between buyers and sellers.”

That is, the euphoria from last week’s long awaited close above the 20,000 level quickly gave way to an insatiable urge to book profits and sell. That’s more than a little disappointing, given the way Wall Street and the financial media hyped Dow 20,000 for months.

Looking back through market history since 1982, when the futures market was started, points to a negative performance bias: Six months later, stocks were on average 0.6% higher (vs. a 5.0% gain for any random six-month period) with a downside risk of 5.6%. Most notably, one of the prior occurrences was on Oct. 8, 2007, which marked the death knell of the last bull market.

Amid all this risk, Wall Street is simply unprepared for a downside scenario: At the end of December, according to Goepfert, mutual fund managers were maintaining their smallest cash allocation on record at just 3.0% of total assets.

In other words, they are all in.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.


Article printed from InvestorPlace Media, https://investorplace.com/2017/02/stocks-mostly-higher-fed-leaves-rates-unchanged/.

©2024 InvestorPlace Media, LLC