The FOMC was positive on the economy but dovish on their inflation targets, the path of rate hikes spurring the market to new highs. The lack of interest rate hike was pretty much expected, what was not so expected was the dovish tone on future rate hikes and the time line for reaching inflation targets. The news sent the dollar crashing to new lows and has affected the markets around the world.
Indices around the world ended the day mixed as the FOMC statements send ripples through the currency world. In Asia Chinese indices were up while the Japanese Nikkei closed with a loss, weakening dollar means strengthening yen which is no good for Abe-nomics and Japans shaky recovery. The same was true in Europe; indices were mixed but mostly closed lower on the day. Rising oil and gas prices were not enough to overcome the effects of a strengthening euro.
Trading here at home was quiet but not mixed. Early indications from the futures market showed a slightly negative open, unaffected by positive economic data, and that held true into the opening bell. The indices opened the day with mild losses, wavered around break even for the first half hour or so, and then began a steady climb that lasted into the lunch time hour and beyond. By 1PM the market was hitting 2016 highs and extended those gains into the late afternoon. Resistance was met in the 3PM hour and capped gains, paring some of today's advance, but left the indices near the high of the day at the closing bell.
There was quite a bit of economic data today and all of it positive. Starting off with jobless claims the initial claims figure rose by 7,000 to hit 265,000. This is slightly above expectations but nothing to be alarmed about. Claims remain near the long term low, at levels conducive to ongoing labor market health and below 300,000 for the 54th week running (according to the BLS this is the longest streak below 300K since 1973). The 4 week moving average of claims rose by 750 but also remains near the long term low. On a not adjusted basis claims fell by -4.2% versus an expected drop of -6.6% and are -8.8% below levels at this same time last year. The biggest increases in claims were in Alabama and Texas, +732 and +707, while the biggest decreases in claims were in New York and California, -17,555 and -1288.
Continuing claims gained 8,000 on top of a +2,000 upward revision to hit 2.235 million. The four week moving average of continuing claims fell by -9,250 to hit 2.243 million, both numbers remain steady relative to levels we've seen over the past few months and consistent with ongoing labor market recovery.
The total number of claims fell by -72,124 and remain consistent with historical trends and ongoing labor market recovery. The total number of claims in this week's data is 2.648 million, the lowest level since the post holiday spike and down -7.4% from last year. Based on the historical data we should start to see a dramatic drop off in this figure within the next few weeks as the spring hiring season begins to pick up.
The Philadelphia Fed Manufacturing Business Outlook Survey was also released at 8:30AM. The survey index was expected to decline by -1% but posted a surprising gain of 12.4%, reversing 7 months of declines. Within the report all the individual gauges showed gains, most advancing into expansionary territory. New Orders rose 21 points, Shipments rose 20 points, Unfilled Orders rose 11 points, Employment rose 4 points but remains just shy of 0 and the Workweek rose 19 points entering expansionary territory. Output also increased, as did forward outlook. The 6 month forward outlook rose 11.5 points to 28.8 and a 4 month high.
The JOLTs and Leading Indicators were both released at 10AM. The JOLTs report shows that the number of available jobs increased by 260,000 to 5.5 million, just short of the record high. Within the report new hires and separations both declined marginally, as did the quite rate. The quits rate fell to 2.8 million but remain elevated and at levels consistent with labor market health.
The Index of Leading Indicators rose by 0.1%, reversing two months of declines. According to Conference Board spokesperson the index has shown a decline in the rate of growth over the past few months but the outlook remains positive with little chance of downturn. The Coincident Index gained 0.1% and the Lagging Index gained 0.4%.
The Oil Index
Oil prices shot higher today on a number of factors. One is that the OPEC/Non-OPEC meeting to discuss production freezes is back on, with or without Iran. Another is the peripheral affect of yesterday's Fed meeting; the more dovish outlook has weakened the dollar and that has helped to support prices across the commodities spectrum. Yet another reason why oil prices have moved higher are new signs of slowing US production. Today WTI crossed above $40 per barrel for the first time since January 4th. While the rally in oil appears to gaining momentum there are some things to be wary of. First, supply and production still outweigh demand. Second, US shale producers have said they would be ready to go back on-line when oil prices move above $40. Third, the meeting to discuss production freezes is still little more than smoke in the wind, when it happens and when they come to an agreement I will believe it.
The Oil Index gained a little more than 2% in today's session and set a new nearly 3 month high. Today's candle turned out to be a small but bullish spinning top and is now approaching a resistance target near 1,115. This target is the 61.8% retracement of the 2009-2012 bull market in oil and has provided support/resistance in the past. The indicators are bullish and pointing higher so it looks like this level will be tested at least although there is some divergence present. Divergences suggest that resistance may hold and at worst, provide a point of reversal, but are by no means a guarantee. A break above resistance could take the index up to 1,200 in the near to short term, first target for support is near 1,050 should the index reverse at resistance.
The Gold Index
The FOMC brought the market a pot of gold this St. Patrick's Day. The lack of rate hike and dovish posture has sent the dollar to new multi-month lows and helped gold regain much of the loss seen earlier this week, jumping more than $30 yesterday afternoon. Spot prices tried to extend yesterday's gains in today's session but were not able too, holding flat throughout the day, likely on profit taking. My view, with the dollar sinking to new lows and the prospect of even 2 more rate hikes in question the bias in gold is to the upside with targets near $1285 and $1300.
The gold miners touched a new high today as rising gold prices impact earnings expectations. The Gold Miners ETF GDX moved up by about 2% in the early part of the session only to hit my resistance targets near $21.25 and reverse today's gain. Sellers stepped in at this level and drove the index back to break even. Despite the move lower the indicators are rolling over into what could become a fairly strong bullish signal; MACD is near the 0 line and about to crossover, stochastic is forming a weak bullish crossover. Should the index break above resistance next target is near $23.
In The News, Story Stocks and Earnings
The Dollar Index fell about -1.15% in today's session and set a new 5 month low. The index is being driven down by a combination of the ECB's indication of no more QE, and the FOMC indication that rate hikes are going to come at a much slower pace than first thought. Today's action took it down below the $95 level with bearish indicators and appears to be headed for next support target near $44.25. Unless data starts coming in much hotter than expected, or the ECB gets back on the QE gas pedal, the dollar could continue lower with target near $96.50 and the long term low.
Michaels Companies, a retailer of arts and crafts supplies, announced earnings before the bell. The company reported top and bottom line beats, along with positive 2016 guidance. Earnings are up 16% from the same quarter last year on a 20% increase in revenue. While full year guidance is slightly above consensus first quarter guidance is a little on the weak side. Despite this the news was seen as favorable and helped to send the stock trading higher. Shares of the stock gapped up at the open, retreat to test support and then advanced roughly 10% for the day.
Nike revealed the first ever self tying shoe today. The technology, which relies on a sensor in the heel, tightens the shoe fit and can be adjusted by buttons on the side. While a neat invention it begs the question â€¦ why? What is the point of this and how durable is the technology? Are they going to provide service when the technology breaks down? I am sure that plenty of people will rush right out to get them as soon as they are available but I doubt I will be one, at best I see this as a novelty item. Regardless, shares of the stock gained more than 2.15% and are trading near a three month high.
Lots of retailers reported earnings this week. For the most part they have reported in line with expectations, some have beat, a few were weak, but the basic tone along with ongoing recovery in the labor market and consumer are helping to support the entire sector. Today the XRT Retail SPDR gained more than 1% and reached a new 4.5 month high. The move is promising, and comes on a massive wave of bullish momentum, but declining momentum and overbought conditions give reason for caution, especially with the onset of earnings season only a few week away. Based on earnings outlook the Consumer Discretionary sector is expected to see earnings growth near 10% in the first quarter, Consumer Staples -3%, so there could be some volatility among the retail subsector.
The indices started today on uneven footing but that quickly changed. By the end of the first hour of trading the market was in rally mode and slowly moved higher for most of the day pushing the major indices to new highs and into positive territory for the year. The biggest gainer of the day by far was the Dow Jones Transportation Average which closed with a gain near 3%. The transports made a strong move higher, breaking past resistance at 7,720, and is accompanied by bullish indicators. Both MACD and stochastic are pointing higher, consistent with a rising market, although divergence is present. Today's move looks like it will continue moving higher with upside target near 8,350.
The Dow Jones Industrial Average made the 2nd biggest move in today's session, about 0.9% at days end. The blue chips extended their move above the long term trend line and accompanied by bullish indicators. Momentum strong and moving higher so this move could continue, with next upside target near 17,750 although there may be some resistance at 17,500. The caveat is that the index has now entered a previous congestion range which may bring the bear out to play. First target for support should the index pull back is near 17,250.
The S&P 500 made the 3rd largest gain in today's session, about 0.66%. The broad market extended its move above the 2020 resistance line, after testing it for new support, and closed with a new 2.5 month high. Today's candle is medium sized, not overly strong, and shows signs of both support and possible resistance with the upper and lower shadows. The indicators are bullish and moving higher although there are some signs the move may be running out of steam, namely divergence in MACD and overbought conditions in the stochastic. Next upside target is near 2090 with a chance of resistance near the 2050 level. First target for support is now 2020 with 2000 next should the first target not hold.
The NASDAQ Composite made the smallest gain today, only 0.23%, after spending much of the session in negative territory. Today's candle is relatively small and shows sign of resistance with the upper shadow but was able to hold and move up from the 4750 level. The indicators are bullish and pointing to rising prices although, like with the other indices, there are divergences present. Next upside target is near 4900.
The market seems to like the FOMC's new stance on the rate hike time line. The dovish tone has delivered a perfect storm of positive factors that should continue to support the market into the longer term. Aside from reduced fear of rising rates the policy statement provided an upbeat outlook on the US economy and a trifecta of reasons to expect earnings outlook to begin ticking higher; the weak dollar will alleviate the impact of currency conversions on international businesses, the weak dollar is helping to support oil prices which should begin to impact energy sector earnings outlook very soon, the weak dollar is helping to support gold prices which will are going to have a positive effect on the gold sector.
I'm still bullish on the market for 2016. Earnings growth is expected to return by the second half of the year and now, more than ever, I think we can expect to see projections begin to improve. My worry is the near term and the upcoming earnings cycle scheduled to begin in less than a month. The S&P is expected to show a decline in earnings growth greater than -8%, the deepest decline since the earnings recession began, and this will not be good for the market. I hate to say it but I think we're in for another dip down to support and the divergences I mentioned in the indices may be foreshadowing this move. The good news is that another dip and test of support will be good for the longer term health of the bull market and another entry point for bullish positions. Until then I'll be riding the rally to its peak, keeping a close eye on open positions.
Until then, remember the trend!