U.S. equities quietly moved higher on Wednesday, continuing the recovery from last week’s big one-day selloff. The big story was the release of the latest Federal Reserve meeting minutes. There were few surprises — officials largely shrugged off a weak first-quarter GDP report as transitory — setting the stage for another quarter-point rate hike at the June policy meeting.
There were also favorable comments about rolling back the Fed’s bloated balance sheet (near $4 trillion now versus around $800 billion before the recession) sooner rather than later. Overall, the CME Fed trackers puts the odds of a June hike at 83%.
In the end, the Dow Jones Industrial Average wafted up 0.4%, the S&P 500 gained 0.3%, the Nasdaq Composite gained 0.4% and the Russell 2000 added 0.1%. Treasury bonds were stronger, the dollar weakened slightly, gold lost 0.2% and crude oil fell 0.2% — breaking a five-session streak of gains — ahead of Thursday’s OPEC production meeting.
Breadth was positive with 1.3 advancers for every declining issue on the NYSE. Volume was light, at 89% of the 30-day average. Materials led the way with a 0.7% gain while telecoms were the laggards, down 0.7%.
The Container Store Group Inc (NYSE:TCS) exploded 35.2% higher on better than expected fourth-quarter sales, comp-store revenues, and earnings per share. Guidance was also strong as management announced a four-part plan to drive sales and profitability focused on further expense controls.
Abercrombie & Fitch Co. (NYSE:ANF) gained 8.9% on additional takeover chatter. And graphics chipmaker Nvidia Corporation (NASDAQ:NVDA) gained 1.1% on reports SoftBank has accumulated a 4.9% stake.
On the downside, Tiffany & Co. (NYSE:TIF) fell 8.7% on a Q1 earnings and margin beat spoiled by light revenues. Advance Auto Parts, Inc. (NYSE:AAP) fell 5.4% on a miss to Q1 earnings, revenue, and margins. And Lowe’s Companies, Inc. (NYSE:LOW) fell 3.0% on a Q1 earnings miss on weaker same-store sales and revenues. The same-store sales growth gap to rival Home Depot Inc (NYSE:HD) widened to 4.0%.
Looking ahead, all eyes are on OPEC’s meeting tomorrow and the fate of the cartel’s production-freeze agreement from last year. The pact — signed on by key non-OPEC producers like Russia — is set to expire at the end of June. The consensus is that OPC will vote for a nine-month extension to help drain a persistent oversupply situation and bloated energy inventories.
This has helped crude oil prices rally 13% over the past week. Now, there is talk the extension could be combined with even deeper output cuts.
But the trouble is that the energy price recovery associated with this production freeze — which was first hinted at back in February 2016 — has encouraged U.S. shale producers, after aggressive cost-cutting efforts, to boost output. The result is that OPEC is walking back their hard-fought market share gains.
Which was the whole point of the oil price war they unleashed in 2014.
Technically, the Dow remains range bound and has returned to three-month resistance near the 21,000 level.
Yet as shown above, breadth is weakening as buyers use fewer and fewer stocks to hold the market aloft: From a high near 80%, the percentage of S&P 500 stocks in uptrends has fallen to just 67%. That’s a sign of vulnerability and waning buying interest.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. A two-week and four-week free trial offer has been extended to Investorplace readers. Redeem by clicking the links above.
