Markets ended up posting unimpressive gains yesterday after spending much of the session meandering between incremental gains and losses. The Dow Industrials (+0.61%), S&P 500 (+0.49% and NASDAQ (+0.38%) all closed at or near session highs. Volume was mixed – indicating that institutional appetite has yet to emerge despite the compression in valuations that we have been presented with this Month. The NYSE saw volume increase by 7.99% while the NASDAQ saw volume contract by 1.65%. Yesterday’s modest tick higher in pricing was not at all reminiscent of a snap back rally or reversal that investors look for to provide punctuation and clearance for a meaningful trade higher. To that point yesterday’s internals on both the NYSE (3-1) and NASDAQ (2-1) were solidly negative.
Any strength that the equity market managed to muster came as a result of crude’s reversal. WTI climbed 2% on the day in what is likely to be a short lived reversal of fortunes and as a result of short covering and oversold conditions. That trade higher is crude will be held captive to Wednesday’s EIA Petroleum Status Report. Strength in the solar space, as a result of the Paris Climate Accord, did also provide some buoyancy to energy broadly speaking as well.
Investor are clearly waiting for Wednesday’s FOMC Announcement on interest rates. According to the CME Group’s FedWatch program, roughly 80% of active investors believe that the Fed will raise on Wednesday. I suspect nearly as important as the widely anticipated move in rates will be the commentary that follows. I expect to see a liberal dose of “gradual”, “shallow” and “measured” in the text coupled with a tone that is deliberate but open-ended in regards to any further moves. “Data dependency” will be the gate keeper for any further tightening.
As I suggested in yesterday’s note, the specter of fall out in the high yield landscape as a result of Third Avenue’s announcement on Friday, continues to hang over the market. In so doing, it is providing yet more caution to investor outlook.
Today’s Economic Calendar will be dominated by the Fed. Far behind in relative importance will be the 8:30 AM EST release of the CPI (M/M 0.0% expected) and the 10:00 AM EST release of the Housing Market Index (63 expected).
Dow Industrials -0.12%
S&P 500 +0.21%