There’s one common theme in the stock market today: Don’t fight the Fed. By “today,” I don’t just mean Friday. I mean, generally speaking as well. Long-time investors and traders know the saying well, but in an era of easy money, the lessons have been pretty clear. Fight the Fed and you’ll get run right over.
On Wednesday, the Federal Reserve cut interest rates for the first time since 2008. Over the last decade, anyone who’s shorted the broader market for prolonged periods of time has likely lost money.
Cliches and saying are often so for a reason: because they’re true. “Don’t fight the Fed” isn’t just some made up Wall Street saying for fun. When the Fed is dovish, it can have a powerful effect on risk assets and equities.
That’s exactly why we’re in a strange position at the moment.
Fighting the Fed or Fighting the President?
To not fight the Fed means to not short equities and other risk assets blindly. Going into the Fed’s announcement on Wednesday, the market was pricing in a rate cut. To get it was little surprise, although the Fed came out even more dovish than expected.
Some initial selling should come as little surprise, particularly with stocks near all-time highs. But with another rate cut likely on the table in September, and potentially another before year end, many would have thought bulls would have confidence right now.
Instead, equities took a dive on Thursday after President Trump tweeted about the trade situation with China. While he remained relatively optimistic, he made it clear that the U.S. isn’t playing games. China isn’t messing around, either.
All that does is ratchet up tensions and make the trade war an even larger concern for investors. The “go-with” trade among rising tariff concerns is to sell the market. But that directly conflicts with the mantra of not fighting the Fed.
It’s left investors in a tough spot, trying to determine what exactly is the right move.
Know Your Levels
I don’t mean to speak of the charts each time we do a Stock Market Today post, but based on comments that I read and questions that I receive, investors seem to be searching for answers. Do they sell on trade-war worries? Buy because the Fed is easing?
When it comes to the S&P 500 ETF, shares broke below the 50-day but reclaimed it into the close. That leaves one of two scenarios next. Either the SPY takes out Friday’s high and attempts to reclaim the 20-day moving average, or it loses Friday’s low and we test the 100-day moving average.
If SPY can reclaim the 20-day, then another test of $300 to $302 is in the cards. The 100-day perfectly correlates with the 2018 highs, but marks a big level. Because below this mark, there’s not an immediate level of support in play. $280 has been notable in 2019, but just below near $276 is the 38.2% retracement for the one-year range, with the 200-day moving average at $276.59.
The $276-ish level happens to correlate with Q4 resistance, too.
So the bottom line is simple: watch the 20-day and 100-day moving averages. Over the former and equities are fine. Below the latter and they could be in trouble. In between is chop.
The QQQ ETF has a very similar setup.
Movers in the Stock Market Today
Given the volatility in the market lately, it’s no wonder we’ve got plenty of big movers. Aphria (NYSE:APHA), Exxon Mobil (NYSE:XOM), Etsy (NASDAQ:ETSY), U.S. Steel (NYSE:X), Chevron (NYSE:CVX) and Arista Networks (NASDAQ:ANET) made the Top Stock Trades column thanks to their big moves. But they weren’t the only ones.
Pinterest (NYSE:PINS) stock surged, at one point up more than 23%, after the company beat on second-quarter earnings estimates. A loss of 6 cents per share topped estimates by 3 cents, while revenue of $261.25 million exploded 62.1% year-over-year and also beat estimates.
The company raised its full-year revenue guidance to $1.11 to $1.12 billion, easily topping consensus views for $1.08 billion. Monthly active users grew 30% year-over-year to 300 million and beat estimates of 291.1 million, while average revenue per user came in 88 cents, up 29% and way ahead of estimates of 80 cents. It was pretty cut and dry: This was a great quarter from PINS.
Even though Square (NYSE:SQ) delivered a top- and bottom-line beat, shares were treated with no mercy. Guidance came up a bit light and analysts are worried about decelerating growth. Shares fell almost 15% in Friday’s session, as shares plunged through numerous support levels.
Newell Brands (NYSE:NWL) jumped more than 13% on the day, while Fortinet (NASDAQ:FTNT) climbed almost 10%, as both were rallying on earnings. On the flip side, NetApp (NASDAQ:NTAP) plunged 20% on Friday.
On the downside, Beyond Meat (NYSE:BYND) fell more than 20% after pricing its secondary offering. Under Armour (NYSE:UA, NYSE:UAA) fell 20%, Dish Networks (NYSE:DISH) slipped ~16% and Best Buy (NYSE:BBY) and Advanced Micro Devices (NASDAQ:AMD) each shed about 11%.