The market rebound from yesterday's lows on strong earnings, economic data and thumbs up for the economy from the FOMC. The committee left rates unchanged but says near-term risks are balanced, there are solid gains in labor, investment and the economy and upgraded their inflation outlook. They now see inflation rising this year and reaching their 2% target in the medium term.
The hawkish alterations to the policy statement raised the chances we'll see 4 rate hikes this year bit did not move outlook for the next hike appreciably. Trump's State of the Union was also talked about but he didn't deliver much change so it was largely shrugged off.
International markets were mixed on earnings, data and caution ahead of today's FOMC meeting. In Asia, markets were wildly mixed with the Nikkei leading losers with a loss near -0.85%, Chinese indices moving in opposite directions and gainers led by Hong Kong. European indices were equally mixed and closed near to flat for the day despite gains in the US market.
Futures trading was positive all morning with gains in the range of 0.5% to 0.85% for the major indices. Future gained some strength on data and earnings although it wobbled a bit going into the open. The open saw gains in the range of 0.45% for the broad market with those extended to 0.75% within the first 15 minutes of trading. This was the early top and resulted in a retreat to break even for the SPX followed by sideways range bound trading the remainder of the morning. The FOMC release caused a little volatility which led the SPX to briefly dip into negative territory. Losses were regained before the close leaving the index with small gains.
ADP Employment was well above expectations and point to strong gains in labor. Whether or not that spills over in the NFP remains to be seen, last month's ADP of 242,000 did not result in similarly strong numbers in the non-farm payrolls. Regardless, December's 234,000 beat consensus estimate of 167,000 and is the second month in a row of gains above 225K. Over the past 12 there have been 7 months above 200K resulting in a 12 month average above 200K. Gains were broad in terms of business size but heavily skewed in favor of service, 212K, with professional, trades and hospitality leading. There were 9,000 new construction and 12,000 new manufacturing jobs announced within the goods-producing sector.
The Employment Cost Index was released shortly after the ADP. The index shows a 0.6% rise in employment cost, in line with expectations. The gains are driven by rising wages and benefits which also show an acceleration from 2016. Wages&Salaries and Benefits increased each increased by 0.5% in the month of December bringing full year 2017 gains to 2.6%. Benefits are up 2.5% YOY but so is the costs of those benefits.
The Chicago Business Barometer fell -2.1 points to 65.7 but remains in positive territory and indicative of moderate economic expansion. This month's reading is also 28% above last January, consistent with long-term improvement in the economy. Three of the five sub-indices fell in the last but two, employment and deliveries, showed gains. New Orders fell to a 5 month lower doing the most to cause this month's decline, regardless it remains positive and indicative of increasing business. The Employment Index hit a 6 year high, breaking above 60 for the first time since 2013.
The Index of Pending Home Sales rose by 0.5% in December, the month of gains and on top of an upward revision to November. The NAR says sales are expected to moderate in 2018 as the impact of new tax laws hurts high-value markets. Despite this economists at the NAR say there is some momentum going into 2018 driven by plentiful jobs and rising wages. The problem is persistently low inventory in both new and older homes.
The Dollar Index
The Dollar Index firmed on the FOMC statement but did not gain much. The statement is a bit more hawkish but only the point of being in-line with current outlook, it did not really increase the pace of the rate hiking timeline. That being said inflation is on the rise and could easily begin to pick up momentum in to the middle part of the year. If so the FOMC could indeed be forced to increase the timeline. Until then the Dollar Index may enter a new trading range while we wait on more data here and from abroad. With the EU, the UK and Japan all showing signs (to varying degree) of accelerating growth the dollar could remain under pressure for some time to come.
The Gold Index
Gold prices wobbled in today's session, settling very near to break even and creating a medium sized doji candle. The placement of today's candle is in the middle of a range between long-term resistance and the 30 day EMA so looks more like indecision than an indication of support or resistance. The metal is under pressure from improving US economics and firming FOMC outlook but supported at the same time by recent weakness in the dollar and to some extend geopolitics. In the near term, it seems as the balance of power may shift to the dollar and if so spot prices are likely to fall. A move lower may find support at the 30 day EMA near $1320, a move higher may find resistance at the long-term high near $1360.
The Gold Miners ETF GDX created a medium sized doji in today's session. Today's candle is to the side of the previous but prices moved down to test support in today's action. Support is the pair of moving averages and based on the candle I'd say it was present. Whether it holds is yet to be seen. The indicators are both bearish and moving lower suggesting support will be tested again at least. A move below the longer term 150 day EMA would be bearish with targets at $22.50 and the bottom of a long-term range near $21. A move up may find resistance at $24, a move above there would be bullish within the range.
The Oil Index
Oil prices went on a bit of a wild ride today. Spot price for WTI was down -0.7% in the early session, bounced a bit, dipped back to the early lows on inventory data and then rebound again to close with a small gain. Today's data showed a larger than expected build in WTI and a smaller than expected draw in gasoline that provides more evidence oil markets are well supplied. Today's action suggests there is still support present near $64 but without positive news could easily crumble.
The Oil Index rebound from yesterday's low but it may be a dead-cat bounce. Today's candle is small and near the bottom of yesterday's long red candle suggesting sellers are still in control of prices. The indicators remain bearish and in support of correction within up trend so further downside may be coming. The first target for firm support at the 30 day EMA near 1385 and would equal a 5% correction from recent highs if hit. In the meantime, prices remain in an uptrend with positive and strong forward outlook. This dip may result in another buying opportunity.
In The News, Story Stocks and Earnings
Advanced Micro Devices reported before the bell and served up a 33% increase in revenue beating analysts estimates on the top and bottom lines. The company also provided guidance above consensus on strength in all areas of operation. There are some questions about the comparability of the figures due to changes in accounting practices but that didn't stop shares from gaining 5%.
Boeing also reported before the bell and also blew past estimates. The airline reported a 9.1% increase in YOY revenue driven by improved performance and operating conditions. EPS of $4.80 beat by a staggering $1.91 but that is due to tax-reform impacts. Ex-tax reform adjusted EPS is closer to $3.05, still ahead of expectations but only by a dime. The company also provided strong outlook which helped to drive shares up by more than 5% to set a new all-time high.
Poultry producers found themselves in hot water after allegations of price collusion were levied by US Foods and Sysco. The two companies, which account for the lion's share of all US restaurant and foodservice business, claim producers have been working together to artificially inflate prices. Reps at the major chicken producers deny the claims but that didn't stop shares of Tyson from falling more than -3.5% on high volume.
After hours action was filled with a number of high profile earnings reports with most beating expectations. Paypal beat top and bottom line, beating expectations, with revenue growth of 25.8%. The company says person-to-person volume is up 50%. Share moved up on the news.
Microsoft reported better than expected top and bottom line earnings with a 12% increase in YOY revenue. Gains are driven by increasing demand and strength in the cloud segment.
Facebook reported better than expected revenue and earnings on strength in advertising. The company provided mixed forward outlook as it pulls all cryptocurrency related ads in response to growing abuses. Shares of the stock fell on the news.
Qualcom beat on the top and bottom lines as did AT&T. The telecom giant reported EPS of $0.78 which beat the consensus by $0.13 and provided strong forward guidance. Shares of the stock moved higher on the news.
The indices had a bit of a wild ride today if inside fairly narrow ranges. The Dow Jones Industrial Average posted the biggest move, close to 1% intraday and near 0.30% at the close. Today's candle is small and red with a long lower shadow indicative of support at the 26,000 level. The indicators have confirmed the move to support with bearish crossovers and suggest a further test of support is coming. A break below 26,000 would be bearish near term with a target near 25,575 and then 25,000. A confirmation of support at current levels or move higher would be trend following and bullish.
The NASDAQ Composite closed with a gain near 0.12% creating a small red bodied candle. Today's candle is within the near term consolidation range so does not appear to be overly bearish on its own. The indicators, however, confirm near-term weakness with bearish crossovers suggesting a move to test support is on the way. Support may be found at today's lows or, if those are broken, near 7,250 and the short term moving average.
The S&p 500 also closed with a gain near 0.05% creating a small red bodied candle. Today's candle is to the side of yesterday's but set a new two week low confirmed by the indicators. Both MACD and stochastic are pointing lower following bearish crossovers suggesting a test of support or correction is at hand. A move lower may find support at 2,800 or just below there at the short term moving average. A break below the MA may go as low as 2,700 or 2,600 and the long-term moving average.
The Dow Jones Transportation Average closed with barely a gain but a gain it closed with. The index created a small tombstone doji at near-term support following a brief pullback. The candle is a sign of support although the indicators remain bearish and in support of further downside. A break below the moving average would be bearish with targets near 10,500 and 10,000. A confirmation of support or move higher would be bullish and trend following with target near 11,500.
Today's action was a little wobbly but generally left the indices sitting on near-term support targets. A move below these targets would, or could, be bearish but in light of recent market gains more likely natural and healthy correction. Anything more would require a deterioration of forward outlook, an expectation for weak earnings or impending unfavorable conditions... none of which are present now. I remain firmly bullish for the long term but have turned neutral for the near term. It's time for me to sit back and wait to see how deep this correction goes, looking for my next great entry point. Based on today's after-hours earnings reports my guess is not too deep but we'll see.
Until then, remember the trend!