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The major question for tomorrow’s meeting is what do the dots say?

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The major question for tomorrow’s meeting: two or three rate hikes? Tom Essaye Quoted in Barron’s

Dow Turns Higher. Tech Stocks Pull Back.

“I think what we’re seeing today is just a little bit of hedging by investors,” Sevens Report Research’s Essaye told Barron’s in a phone interview.

Essaye says that ahead of the Fed meeting, traders may be looking at defensive stocks on the chance that the Federal Open Market Committee’s March meeting sends stocks lower or pushes yields lower.

“The major question for tomorrow’s meeting is what do the dots say: two or three rate hikes?” Essaye says. “That’s really gonna determine how the market reacts to this meeting.”

“AI enthusiasm has been a major factor in this rally, and as long as nothing else is particularly negative, AI enthusiasm can continue to push markets higher,” Essaye says. “That’s what happened yesterday. Today, we don’t have that sort of new shiny object in AI to focus on, and we have the Fed decision tomorrow.”

Also, click here to view the full Barron’s article published on March 19th, 2024. However, to see the Sevens Report’s full comments on the current market environment sign up here.

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Can GameStop Cause A Correction?

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What’s in Today’s Report:

  • Can GameStop Cause a Correction?
  • Why Yesterdays FOMC Meeting Was More Important Than It Seemed
  • Oil Analysis and EIA Update

Futures are marginally lower as markets digest Wednesday’s selloff following a quiet night of news.

Foreign markets traded lower as they reacted to Wednesday’s U.S. sell off, but that was driven by sentiment, not any actual bad news. To the contrary, earnings after the close yesterday were solid, including AAPL and FB.

Today there are important events outside of GameStop and it’s heavily shorted peers, but how those stocks trade will decide whether this pullback gets worse or takes a pause.  Broadly, the market is moving inverse to GME and similar stocks, so if they rally today, expect more market declines, and if they decline, look for stocks to bounce back.

Looking at actual fundamentals, the key report today is Jobless Claims (E: 875K) and markets will want to see that number continue to decline from the recent highs.  We also get Advanced Q4 GDP (4.2%), but while that will get media attention, it’s a dated number and won’t move markets.  New Homes Sales (869K) will also be released later this morning, but shouldn’t move markets.

On the earnings front, the biggest reports for the week have already been released, but there are still notable reports today including: AAL (-$3.92), JBLUE (-$1.72), LUV (-$1.69), MA ($1.51), SHW ($4.85), CMCSA ($0.49), V ($1.27), X (-$0.67).

Fed Day and Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview
  • Is Natural Gas About to Surge?
  • What Constitutes a Positive Move Post Fed?

Futures are flat ahead of the Fed decision and multiple key economic releases today while int’l shares declined overnight on soft data.

The Eurozone EC Economic Sentiment Index dropped to 100.8 vs. (E) 101.4 in October, a fresh 3+ year low as recession concerns continue to weigh on growth expectations.

The FOMC Meeting Announcement at 2:00 p.m. ET and Fed Chair Powell’s Press Conference at 2:30 p.m. ET will clearly be the main events for the markets today however there are two key economic reports that warrant attention before the bell this morning: Econ Today: ADP Employment Report (E: 139K) and Q3 GDP (E: 1.7%).

Meanwhile, earnings season remains in full swing with multiple important reports due out today: GE ($0.12), SNE ($1.08), YUM ($0.94), AAPL ($2.84), FB ($1.91), SBUX ($0.70), WDC ($0.28), SU ($0.54).

Bottom line, economic data and earnings will be able to influence early price action across asset classes today but where equity and bond markets close will almost exclusively rely on whether the Fed meets expectations, comes across as dovish, or offers another hawkish (and bearish stocks) surprise like we saw back in late July.

Fed Preview: What to Expect

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What’s in Today’s Report:

  • FOMC Preview

Asian markets rallied modestly overnight after the BOJ met expectations while Brexit angst continues to weigh on EU stocks and U.S. futures as investor focus turns to the Fed.

Economic data did not move markets overnight and trade talks between the U.S. and China don’t begin until later today so there were no material developments on the trade war front.

The FOMC Meeting, which is clearly the biggest event of the week, begins this morning and that will likely lead to a sense of “Fed paralysis” in the markets before tomorrow’s announcement and Powell’s press conference however there are still a few important catalysts to watch today.

Economically, the Fed’s preferred measure of inflation: Core PCE Price Index (E: 0.2%) within the Personal Incomes and Outlays report will be the most important report to watch (it is due out before the bell), but there are a few other releases to watch as well: S&P Case-Shiller HPI (E: 0.2%), Consumer Confidence (E: 125.0), and Pending Home Sales (E: 0.3%).

On the earnings front, we will get second quarter results from: MA ($1.82), PG ($1.06), MO ($ 1.10) before the open, and AAPL ($2.10), AMD ($0.08), ALL ($1.48), CHRW ($1.21) after the bell this afternoon.

FOMC Preview, September 19, 2017

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On the surface, tomorrow’s FOMC meeting is expected to be relatively anti-climactic. The Fed is expected to go forward with balance sheet reduction while keeping interest rates unchanged. But, this is a meeting where the Fed will produce updated “dots,” and combined with the fact that the market is very complacent with regards to a December rate hike (i.e. the market doesn’t expect it) there is the chance for a hawkish surprise.

From a practical standpoint, the key here is how the 10- year yield reacts. If the Fed is marginally (or outright)  hawkish and the 10-year yield pushes through short-term resistance at 2.27% and longer-term resistance at 2.40%, that could be a tactical game changer and warrant profit taking in defensive sectors, and rotation to more cyclical sectors.

Hawkish If: The Fed provides a (very) mildly hawkish surprise if the “dots” show one more rate hike in 2017 (so unchanged from June). Specifically, in June four Fed votes expected just two rate hikes in 2017. If that number decreases to three or two, it will be a mild hawkish surprise. The Fed will provide a more serious hawkish surprise if the dots show another rate hike in ’17 and an additional rate hike in 2018 (so the median dots staying at 1.375% for ’17 and rising to 2.375% from the current 2.125% in ’18).

Likely Market Reaction. Stocks: If it’s a mildly hawkish surprise, then it should…(withheld for subscribers only—unlock specifics and ETFs by signing up for a free two-week trial).

Meets Expectations If: There are no changes. The median dots still signal a December rate hike is expected, but one or two Fed officials change their dot to reflect just two rate hikes in 2017. That would imply a December rate hike is far from certain (matching the market’s current expectation) and it would be taken as mildly dovish.

Likely Market Reaction. Stocks: Cyclicals and bank stocks would likely see some…(withheld for subscribers only—unlock specifics and ETFs by signing up for a free two-week trial).

Dovish If: The dots show that more than four Fed voters switch their dot to reflect no rate hike in December. That would effectively put a December rate hike off the table.

Likely Market Reaction. Stocks: A decidedly week (on a sector level). Stocks would likely rally in an
algo-driven…(withheld for subscribers only—unlock specifics and ETFs by signing up for a free two-week trial).

Wildcard to Watch: Balance sheet reduction. Everyone expects the Fed to commence balance sheet reduction tomorrow, but they haven’t ever explicitly said they will reduce the balance sheet in September. So, there is a slim chance they might not, and that they might opt to wait for the next meeting (in November). This is a remote chance, as the Fed has clearly telegraphed the balance sheet will be reduced in September, but it’s possible for a last-minute change.

Likely Market Reaction: Very dovish…(withheld for subscribers only—unlock specifics and ETFs by signing up for a free two-week trial).

In all likelihood, this Fed meeting should meet expectations, but that will leave the market at risk to a potential hawkish surprise later as investors are not pricing in a December rate hike despite the Fed signaling it all year.

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