Potential Rate Hike, Blizzard Battle for Dominance of the S&P 500

On Monday, the anticipation of a late-winter blizzard approaching the east coast of the U.S. and a likely near-term interest rate increase by the Federal Reserve resulted in an absence of activity in stocks.

Both stocks and U.S. government bond prices fell slightly, an unusual development that offsets a resulting net advance in either. The Dow Jones Industrial Average fell 0.1%, the S&P 500 was flat, the Nasdaq gained 0.2% and the Russell 2000 closed up 0.4%.

The expectation by bond traders is that the FMOC will raise short-term rates, boosting the yield on the U.S. Treasury note to 2.6% from 2.5% on Friday. It is thought that the rate increase will be the first of three increases this year.

At the end of the session, the Dow Jones Industrial Average fell 22 points, closing at 20,881, the S&P 500 gained a point at 2,373, the Nasdaq gained 14 at 5,876, and the Russell 2000 closed at 1,370 for a gain of 5 points. The New York Stock Exchange’s primary exchange traded 738 million shares with total volume of 3.1 billion shares. The Nasdaq crossed 1.8 billion shares. On the Big Board, advancers outpaced decliners by 1.5-to-1, while on the Nasdaq, advancers led by 1.7-to-1. On the NYSE, blocks fell to 5,852 from 6,680 on Friday.

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Potential Rate Hike, Blizzard Battle for Dominance of the S&P 500

On Monday I noted the small divergence between the iShares Russell 2000 Index (ETF) (NYSEARCA:IWM) and the SPDR S&P MidCap 400 ETF (NYSEARCA:MDY). Note that today’s chart of the MDY clearly shows that the mid-caps held exactly at the 50-day moving average (blue line) and reversed from it, providing two days of gains (Friday and Monday). But also observe that in the last six days there has been more distribution (sales) than accumulation (buys). MACD is oversold on both charts, but both are trapped in a very narrow range of activity.

Conclusion: The stock market’s reaction to the Fed’s rate increase may initially be muted by the blizzard descending on New York. But when the floor traders get back to work, we will be able to discern if the pros interpret the rate increase favorably (indicating a strong economy) or negatively (fear of a slow-down due to the increase).

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

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