Indices finished flat as investors digested Fed’s mixed announcements

Commenting on today’s trading with a focus on overall mixed announcements from the Fed Gorilla Trades strategist Ken Berman said:

 

mixed announcements

mohamed_hassan / Pixabay

 

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Q2 hedge fund letters, conference, scoops etc

The major indices continue to consolidate just below their all-time highs, but the choppy period could soon end on Wall Street, as fundamentals remain solid. Today’s session proved the resilience of the stock market despite this week’s turmoil in the Middle East and the uncertainty regarding the Fed’s next steps, and the fact that the Volatility Index (VIX) hit its lowest level since July today also made bulls smile.

The major indices finished the day mixed and flat despite a bullish start to the session, as investors digested Fed’s mixed announcements.  The Dow was down 52 or 0.2%, to 27,095, the Nasdaq lost 5, or 0.1%, to 8,183, while the S&P 500 rose by 1, or 0.01%, to 3,007. Advancing issues outnumbered decliners by a less than 6-to-5 ratio on the NYSE, where volume was slightly below average.

S&P 500 below all-time highs as Fed has overall mixed announcements

The key sectors diverged substantially again today, and the afternoon session saw a strong reversal ‘under-the-hood’. Tech stocks and small-caps led the charge during the morning, but the Russell 2000 turned sharply lower in the second half of the day, and the tech sector also got under pressure due to a negative report on the current round of trade negotiations with China. Consumer goods, industrials, and services all finished in the red because of the late-day sell-off while the defensive utilities and healthcare sectors pushed higher into the close.

Even though trade-related fears could weigh on sentiment tomorrow, and the Chinese economy is still worryingly weak, global risk assets remain bullish. The Great British Pound had a big day, as the Bank of England (BOE) held its benchmark rate steady and a high-level European Union (EU) official hinted on a possible Brexit deal. The currency hit its highest level since mid-July against the dollar, and since a no-deal Brexit is among the biggest risk factors of the rest of the year stocks, so European assets could give another boost to U.S. stocks in the coming weeks.

Markets slightly below all-time highs

While stocks and bonds were remarkably stable despite yesterday’s mixed announcements by the Fed, the funding troubles that shook up the interbank credit market still hasn’t completely subsided. Market participants have been scrambling for liquidity since Tuesday, and despite the Fed’s intervention, overnight rates are still unusually high. The Fed even faced increased demand for liquidity today, and it will be interesting to see how the situation will evolve tomorrow. For now, risk assets haven’t been greatly affected, but should the issue persist, safe-havens, such as Treasuries and gold could rally once again.

The busy week will end with a calm day in terms of economic releases, since the domestic economic calendar will be empty. The major central banks all concluded their monetary meeting as well, and even though the BOE release its quarterly bulletin tomorrow, technicals will likely have the biggest impact on stocks. That said, the pre-market session could see some activity especially in Europe-related assets, as the German Producer Price Index (PPI) and the Eurozone consumer confidence number will both be out overnight.

Technical Corner

 Since the major indices haven’t covered much ground this week, the technical picture is virtually unchanged, with all of the key trend indicators still showing bullish readings. The benchmarks are all well above their rising 200-day moving averages of 7,659 for the Nasdaq, 2,821 for the S&P 500, and 25,729 for the Dow, confirming the positive long-term trend in stocks. The indices are also above their 50-day moving averages of 2,951 for the S&P 500, 8,061 for the Nasdaq, and 26,609 for the Dow, and they are within a couple of percents off their all-time highs.

Microsoft (MSFT) has been among the mega-cap leaders of 2019, and after a month of consolidation, the stocks hit a new all-time high today, thanks to yesterday’s $40 billion stock buyback announcement. Buybacks have been behind some of the most persistent trends during the current bull market, and in light of the still positive technicals, Microsoft could be ready to take off again. The stock has been showing relative strength during the August pullback, and it is still clearly above both its 50- and 200-day moving averages, so a sustained breakout to uncharted territory might already be underway. Stay tuned!




About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver