Month: September 2015

The week is beginning in bullish territory, with the major indexes closing higher on the day. Momentum-leading homebuilder stocks are off to an even better start, thanks to a strong announcement from Lennar (LEN), which saw earnings beat expectations by more than 20 percent. Sales increased double digits and prices rose 5 percent. There were also a few areas of weakness, such as Houston, which has been hurt by the plunge in oil prices.

Crude oil and equities were down on Friday, while gold rallied. In contrast, today crude oil and equities moved higher, while gold fell. It typically takes a few days for the market to get its bearing after a Fed meeting and we might see a clear trend emerge this week. The U.S. dollar is also rallying after comments from one of the most outspoken Fed officials.

On Monday, St. Louis Fed President Bullard said the FOMC vote was close and rates could go up in October, though he noted the short time period doesn’t leave much room for data to change. Bullard cannot vote at FOMC meetings, but said he would have voted to hike rates. He also chastised CNBC’s Jim Cramer during an interview with that network, saying the Fed cannot prop up stocks. He said, “I’ve got a message for your friend Jim Cramer. The Fed cannot permanently raise stock prices. The idea that the Fed is going one way or the other, and this is what’s driving the stock market, is not true…And to have him cheerleading for lower rates 24-hours a day is, I think, unsavory.” This is a switch from his position a year ago. In early autumn of last year stocks suffered a brief sell-off. At the time, Bullard said the Fed could do a fourth round of quantitative easing if necessary and stocks immediately rallied, with his comments effectively marking the bottom.

Economic data this week will be closely watched. The flash manufacturing PMI for various nations will be released on Wednesday. China’s will have the most direct impact on financial markets, specifically industrial commodities such as copper. The third and final revision of second quarter GDP will be announced on Friday. The forecast is for 3.7 percent growth, the same as the second estimate, but the odds of an upward revision are good thanks to data strengthening over the quarter.

Aside from Lennar (LEN), Carnival (CCL), Bed Bath & Beyond (BBBY) and Nike (NKE) also report earnings this week.

Key levels to watch this week: 4900 on the Nasdaq and 2000 on the S&P 500. A move above either level would trigger a short-term bullish signal for technical traders. Oil has been in a trading range between $44 and $48 in September; unless oil moves outside of the band, more sideways trading is likely.

The Federal Reserve decided against raising interest rates at this week’s meeting and expectations have now shifted to later this year or even at the beginning of 2016. A December rate hike is a strong possibility, with a probability of 41 percent based on the positions of speculators today. Since these odds fluctuate, the December number could easily climb above 50 percent. A January 2016 rate hike currently is currently a 50-50 proposition; March odds are over 60 percent.

The Fed’s statement was unremarkable, with only one noteworthy change, being the following sentence: “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” This caused investors to believe China was the factor keeping the Fed from hiking. However, the very next sentence began with “nonetheless,” indicating the Fed doesn’t see U.S. economic growth being impacted.

Assuming nothing significant happens over the next three months, a December rate hike seems most likely. Recall the taper fake out in 2013 when investors widely expected the Fed to start the taper in September 2013, only to delay until December. Yellen may be pursuing the same strategy here in order to fully prepare the market.

The impact of the no decision on financial markets was initially negative. After a quick reaction rally, stocks have since moved lower. Currency traders initially sold the U.S. dollar, but then bought it back due to speculation the European Central Bank may increase quantitative easing to push the euro lower. Bonds have moved higher, as has gold. Copper and oil prices fell, likely due to China concerns. Since it usually takes several days for the market to find its footing, investors should not bank on these trends continuing. Of all of the possible scenarios, the one most likely to survive is the dollar uptrend since rival central banks will likely weaken their currencies as they know the Fed won’t aid them by hiking rates.

Economic data remains solid. Retail sales increased 0.2 percent in August, down slightly from last month’s 0.7 percent gain, but still at a good annualized rate. Home builder confidence hit its highest level in a decade, and weekly jobless claims were 264,000, below estimates of 275,000 and down from last week’s 275,000 announcement.

Even though stocks fell in the wake of the Fed’s decision, stocks are set to finish the week with a small gain. The S&P 500 Index is up 0.7 percent for the week in midday Friday trading, the Nasdaq up 1 percent. While there has been a great deal of volatility in the market, which has sent stocks higher and then lower, the steady recovery trend remains in place since stocks bottomed on August 24.