The Calm Before the Storm

US equity markets posted mixed results yesterday as volume on the NYSE (-18.09%) and Nasdaq (-4.81%) contracted. Of the three major equity market indices, the Dow Industrials led the market higher by posting a gain of 0.40%. The S&P 500 closed nearly flat, gaining 0.09% and the Nasdaq slipped 0.19%. In a remarkably rare occurrence, thus far in 2016, small cap names represented by the Russell 2000 did best yesterday by gaining 1.2% on the session. There was a degree of expected intraday volatility as investors wrestle with determining where the near term direction lies, but otherwise it was a rather uneventful trading session. Markets remain in a confirmed uptrend.

From a sector standpoint, financials were overdue for a weak performance given the sharp rally the sector has posted over the past two weeks, and they delivered just that. Financials posted a loss, as a sector, of 0.62% on the day. The energy sector, not at all surprisingly, was again the outperformer on the day. Of the nine sectors we track on a daily basis, seven closed in the green.


Odds of a rate increase in March rise modestly, still remote

The Economic Calendar provided little in the way of a narrative yesterday. The highlights of the day were speeches given by Fed officials Lael Brainard and Stanley Fischer. In the case of the former, Lael Brainard underscored the need for patience by the Fed in terms of the next bump in rates. In the case of the later, Stanley Fischer spoke to the need of keeping a close eye on inflation. Neither speech opened a new chapter in the narrative and both offset one another.

Today’s calendar is even lighter: NFIB at 6:00 AM EST and Redbook at 8:55 AM EST. No Fed speeches.

The lackluster performance posted by the most closely watched equity indices yesterday was not due to a lack of support from a recent ally – oil. On the day, crude oil WTI rallied, posting a 5.5% gain or $1.99/bbl. Since the February 11th low, crude has rallied nearly 40%. My suspicion is that we see crude hit a wall sooner rather than later. Let’s face it, a 40% move to the upside, even from deeply compressed levels, will likely trigger some selling. Further, as the price of oil increasingly nears $40/bbl, you can be certain the efficiency of supply coming on line will be fierce. $40/bbl seems to be the widely shared price point at which the flood gates of domestic supply are opened. The shift in trend that I expect to see manifest in the crude trade coupled with the upcoming FOMC Announcement should fuel an uptick in volatility.

flickr photo: Jose Gimenez