Commenting on today’s trading with a focus on the Fed’s third rate cut, Gorilla Trades strategist Ken Berman said:
Stocks had a typical Fed-day, with a very choppy morning session and a much more active afternoon, but volatility remained very low even following the Central Bank’s announcements. The Volatility Index (VIX) hit its lowest level in three-moth today in late trading, once again confirming the healthy trends in the stock market, and while small-caps were worryingly weak in the morning, the session finished with a broad rally, lifting most of the risk-on sectors.
Q3 2019 hedge fund letters, conferences and more
The major indices quickly recovered from yesterday’s pullback, finishing higher following the highly-anticipated rate cut by the Fed, with the S&P 500 hitting yet another all-time high. The Dow was up 115, or 0.4%, to 27,187, the Nasdaq gained 27, or 0.3%, to 8,304, while the S&P 500 rose by 10, or 0.3%, to 3,047. Decliners outnumbered advancing issues by an almost 5-to-4 ratio on the NYSE, where volume was slightly above average.
The Fed delivered its third rate cut in a row, in line with the Street’s expectations, and even though the Central bank signaled that the current ‘mini-easing-cycle’ is likely over, it left the door open for further cuts. Chairman Jerome Powell pointed out the global deflationary forces to justify the Fed’s easy stance in the face of the modest U.S. growth and the recent rally in risk assets. While stocks initially turned slightly lower in the wake of the rate cut, the day finished in a bullish fashion, with tech stocks and consumer goods leading the late-session rally.
Third rate cut not only highlight of the day
The fact that the consumer economy was even stronger-than-expected in the third quarter lifted the sector, while General Electric’s (GE) positive earnings surprise and bullish guidance contributed to the rally in the industrial sector. Financials lagged the indices due to the late-day dip in treasury yields, while materials remained under pressure all day, as the larger-than-expected crude oil inventory build weighed on the energy sector.
This afternoon’s corporate earnings will likely set the tone for Thursday’s session, due to the $2 trillion market cap of the reporting companies. Facebook (FB) and Apple (AAPL) both handily beat expectations on their bottom lines, so the Nasdaq could be in for a bullish open. American Tower (AMT), Bristol-Myers (BMY), and Altria (MO) will be among the key firms reporting in pre-market trading, while the reactively quiet after-hours session will be highlighted by the reports of Pinterest (PINS) and Western Union (WU).
We will have another day of economic releases following today’s data dump, and in light of today’s inflation-related comments by the Fed Chair on the third rate cut and economic outlook. We also will get the core PCE Price Index which could spoil the party for bulls. The Central Bank’s preferred inflation measure missed expectations for two months in a row, but a higher-than-expected reading could lift the yearly pace of price change back above the Fed’s target, making another easing step unlikely. The Chicago PMI, personal spending, and the Challenger job cuts estimate will also be out tomorrow, while the Chinese Manufacturing PMI could already make waves overnight. Stay tuned!
