The S&P 500 futures are up 37 points and are trading 1.0% above fair value. The Nasdaq 100 futures are up 133 points and are trading 1.0% above fair value. The Dow Jones Industrial Average futures are up 252 points and are trading 1.0% above fair value.
Central bank news is dominating the wires.
- The ECB is holding an emergency meeting to discuss fragmentation issues and presumably a response to cure them. Some see this as another “whatever it takes” moment, so European bonds and stocks have rallied on the news.
- The FOMC completes its two-day meeting today. The market expects a 75-basis point rate hike. The policy directive and summary of economic projections will be released at 2:00 p.m. ET and Fed Chair Powell’s press conference will follow at 2:30 p.m. ET.
- The Shadow Committee for the Bank of England reportedly expects a 50-basis point rate hike at Thursday’s meeting against expectations for a more modest 25-basis point increase.
- Reserve Bank of Australia Governor Lowe expects CPI to increase further and believes policy should respond to the CPI pressure in a decisive manner.
- The Bank of Japan continues to adhere to a yield curve control policy.
The bounce in the futures trade isn’t altogether surprising. The scope of recent losses is material. The S&P 500 is down 4.2% this week and down 10.4% from the intraday high it saw last Monday. The short-term oversold posture is fueling a belief that a rebound of some kind is in order.
Furthermore, there is some chatter that the market will respond positively to a more aggressive rate-hike approach from the Fed that is aimed at killing inflation. That is debatable given that the market remained under pressure yesterday despite the understanding that the fed funds futures market had nearly fully priced in the likelihood of a 75-basis point rate hike at today’s meeting.
In any case, there has been a notable drop in Treasury yields this morning that is helping the rebound-minded tone. The 2-yr note yield is down 13 basis points to 3.30% and the 10-yr note yield is down 11 basis points to 3.37%.
(Michael Gibbs, Director of Equity Portfolio & Technical Strategy)
The S&P 500 traded down to a new intraday low for the year of 3705.68 but rallied to close at 3735.48. The RSI index closed at 31.59 above the oversold zone, not a new low. So, a positive divergence could show that intense selling is drying up for now. We feel the Federal Reserves rate hike announcement today is already priced into the markets, and we could potentially see an oversold bounce after the announcement. Potential support could come in at 3705.68 and then possibly at 3588.11. There is also possible resistance at 3723 if there is any buying today.
We are currently Intermediate-term bearish and short-term bearish.
John N. Lilly III CPFA
Accredited Portfolio Management Advisor℠
Accredited Asset Management Specialist℠
Portfolio Manager, RJFS
Windsor Wealth Planners & Strategist
Futures trading is speculative, leveraged, and involves substantial risks. Investing always involves risk, including the loss of principal, and futures trading could present additional risk based on underlying commodities investments.
The Relative Strength Index (RSI), developed by J. Welles Wilder, is a momentum oscillator that measures the speed and changes of price movements.
The advance/decline line (A/D) is a technical indicator that plots the difference between the number of advancing and declining stocks on a daily basis. The indicator is cumulative, with a positive number being added to the prior number, or if the number is negative it is subtracted from the prior number.
The A/D line is used to show market sentiment, as it tells traders whether there are more stocks rising or falling. It is used to confirm price trends in major indexes, and can also warn of reversals when divergence occurs.
The percentage of stocks trading above a specific moving average is a breadth indicator that measures internal strength or weakness in the underlying index. The 50-day moving average is used for short-to-medium-term timeframes, while the 150-day and 200-day moving averages are used for medium-to-long-term timeframes. Signals can be derived from overbought/oversold levels, crosses above/below 50% and bullish/bearish divergences.
The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S stock market. Past performance may not be indicative of future results. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investors’ results will vary. Opinions expressed are those of the author John N. Lilly III, and not necessarily those of Raymond James. “There is no guarantee that these statements, opinions, or forecast provided herein will prove to be correct. “The information contained was received from sources believed to be reliable, but accuracy is not guaranteed. Investing always involves risk, and you may incur a profit or loss. No investment strategy can guarantee success. The charts and/or tables presented herein are for illustrative purposes only and should not be considered as the sole basis for your investment decision. International investing involves special risks, including currency fluctuations, different financial accounting standards, and possible political and economic volatility. Investing in emerging markets can be riskier than investing in well-established foreign markets.
This is not a recommendation to buy or sell any company’s stock mentioned above.
US government bonds and treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. US government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. Holding bonds to term allows redemption at par value. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise.