Sometimes it is amusing to watch how stocks trade and then compare them to what bonds and the dollar do. The FOMC meeting went as I expected it would. The Fed indicated that tapering was likely to begin in November. During the press conference, Powell seemed a little bit nervous and tried to choose his words carefully, but at the end of the day, it seemed the message was pretty clear. The Fed did downgrade the 2021 GDP growth rate to 5.9% from 7%, no surprise there either. They also did indicate a potential rate hike in 2022, and rates climbing to 1% by 2023.
As the press conference rolled on, the dollar, along with 2,5, and 7 bond rates, started to rise, as they should with the tapering of QE on the way. However, rates on the 10-year and 30-year fell most likely tied to the downgrade of GDP growth. Additionally, the reduction of QE from the mix will likely help to slow growth in the long-run as well. It seemed pretty clear from this reaction, the bond and currency responded how they should to the FOMC.
The equity market seemed to have no clue what to do as usual, rising and falling, but mostly it seemed to be unfazed. Cyclical stocks had the best performance, led higher by the energy sector and banks, very odd. At this point, one would think that all the good news has already been priced into these stocks, and that slowing GDP growth would negatively impact those earnings expectations. Not to mention, a stronger dollar should weigh heavily on commodities, emerging markets, material stocks, and multinationals. So I don’t see how tightening financial conditions, a stronger dollar, and slowing growth is additionally bullish for these sectors.
S&P 500
But anyway, the S&P 500 gained about 1% yesterday and even tried to break the downtrend I mentioned on Wednesday. It will need to be confirmed today, if it really is broken. If it did break out, then I could see it rising to around 4450 over the very near term. If it didn’t, I think we are targeting 4,225.
Dollar
The dollar index is very close to breaking resistance around 93.70, which would help to boost it to around 94.60. The trends here are strongly bullish based on the RSI.
Yields
It looks a lot like the spread between the 10s and the 2s are going to head lower towards the 1% level.
Apple
Apple (NASDAQ:AAPL) rose yesterday, and it looks like it merely filled the gap from the drop on Sept.17. I continue to think the shares will head lower towards the longer-term trend line around $130 over the near-term.
JP Morgan
JPMorgan (NYSE:JPM) also rebounded today, but like Apple, it appears merely to be a gap fill. The relative strength index trend is still firmly bearish. Additionally, it would appear that earnings estimates for the next-twelve-month is now starting to come down for the company. I think $148 is the stock’s next stop.
Facebook (NASDAQ:FB) fell by nearly 4% on concerns over their ad revenue. The stock is probably oversold here on the short-term basis, with a gap to fill up around $359.
