U.S. equities didn’t do much on Tuesday, holding near the unchanged line as investors away major events later in the week, including the release of the latest Federal Reserve meeting minutes on Wednesday and the latest jobs numbers on Friday. Also on the docket is a vote on President Trump’s nominee for the Supreme Court and possible action on healthcare reform legislation after a disappointing loss of momentum two weeks ago.
The biggest news of the day was the unexpected resignation of Richmond Fed President Lacker after admitting he improperly leaked information to an analyst. Also notable were reports Trump could be considering a value-added tax or a carbon tax (sure to please Democrats) to help pay for corporate and personal tax cuts.
In the end, the Dow Jones Industrial Average gained 0.2%, the S&P 500 added 0.1%, the Nasdaq Composite wafted up 0.1% and the Russell 2000 finished the day lower by 0.1%. Treasury bonds were weaker, the dollar was stronger, gold gained 0.4%, and crude oil gained 1.6% ahead of inventory data.
Energy led the way higher with a gain of 0.7%. Exxon Mobil Corporation (NYSE:XOM) gained 0.4%, lifting the value of the April $83 calls recommended to Edge Pro subscribers. REITs and financials were the laggards, down 0.3% and 0.2%, respectively.
Staples, Inc. (NASDAQ:SPLS) gained 9.8% after the Wall Street Journal reported the company is exploring a possible sale and is in talks with buyout firms. Graphics processor maker and autonomous vehicle technology play Nvidia Corporation (NASDAQ:NVDA) fell 7% after being downgraded by analysts at Pacific Credit warning of saturation in the desktop GPU market and lower margins from Nintendo Switch revenue. And Delta Air Lines, Inc. (NYSE:DAL) fell 2.6% on lowered revenue guidance.
Heading into Wednesday, Deutsche Bank economist Joseph LaVorgna is looking for insight from the Fed minutes on possible action to normalize the Federal Reserve’s swollen balance sheet — which expanded from $1 trillion before the financial crisis to $4.5 trillion now after multiple asset purchase stimulus programs.
Tightening the balance sheet, likely by allowing assets to “roll off” as they mature, is tantamount to a form of policy tightening since it will reduce the money supply available to the capital markets. Policymakers have said in the past they would wait to have a conversation on this until interest rates rise well above zero.
With three quarter-point rate hikes done since the tightening campaign started in 2015, and with another two or three hikes expected this year, now’s the time to have that conversation.
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.