Equities rallied hard on Thursday as investors were apparently pleased that the Federal Reserve held off on raising interest rates at its June policy announcement yesterday. The tech-heavy Nasdaq even nabbed a new record high, moving above its dot-com peak.
But the action felt a little mechanical with big, jagged moves in the currency markets and a focus on heavily shorted stocks; suggesting this is another post-Fed short squeeze of the type seen back in March.
Commentators tried to spin the Fed result as dovish, but it’s hard to see this: The Fed’s “dot plot” of interest rate forecasts remains more aggressive than where the futures market is. Breadth also remains tepid. The onus is on the bulls to show they’re going to follow through on the day’s action.
In the end, the Dow Jones industrial Average gained 1%, the S&P 500 gained 1%, the Nasdaq Composite gained 1.3%, and the Russell 2000 gained 1.3%.
Healthcare stocks led the way with a 1.5% gain thanks to a 3.1% move in the iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:IBB) as the ETF surges out of trading range going back to March.
Biotech has been an area of frequent speculative interest in recent years, but had fallen flat over the last few months on valuation concerns — concerns that have apparently faded now.
Consumer staples are also doing well, with Procter & Gamble Co (NYSE:PG) up 0.9%.
Energy stocks were the laggards, finishing flat despite a 0.8% rise in crude oil to $60.41 a barrel. Oracle Corporation (ORCL) fell 4.8% after reporting weak fiscal Q4 revenue and earnings on soft software license revenue.
Not much attention was paid to the economic data, with consumer price inflation mixed (stronger headline, softer core)
My apprehension lingers as Greece is apparently headed for an exit from the Eurozone. Those aren’t my words, but those of the Eurogroup chief after a meeting of finance ministers broke up with no agreement. Things are accelerating — amid unconfirmed, mixed rumors hitting the headlines — with Greek deposit outflows reaching destabilizing levels and the end-of-the-month deadline on a $1.8 billion payment to the International Monetary Fund fast approaching.
The big rumor was that the European Central Bank reportedly told European Union officials it was unclear whether Greek banks would be able to open on Monday. The ECB reportedly will hold an unscheduled meeting on Friday to consider a request for additional emergency liquidity from Greek banks.
It’ll be interesting to see if the ECB precipitates the situation by denying the request.
Technically, breadth remains tepid as buying interest has been narrowing for months. We’ve also recently seen a cluster of “Hindenburg Omens” as a result.
Buckle up, because the evidence suggests the range bound trading we’ve seen since December is finally going to end one way or another as we near the start of Fed rate hikes and a conclusion to the long simmering Greek debt problem.
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.
