Breaking News

Fed Alert: All Eyes On Powell And Company As Rate Decision Awaited

By TD Ameritrade (JJ Kinahan)Jun 19, 2019 01:08PM ET
Fed Alert: All Eyes On Powell And Company As Rate Decision Awaited
By TD Ameritrade (JJ Kinahan)   |  Jun 19, 2019 01:08PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

(Wednesday Market Open) The first positive China trade news in weeks debuted just in time for the Fed’s decision later today. Whether stocks follow Tuesday’s sharp rally with another move higher could depend on what happens at 2 p.m. ET when the central bank wraps up deliberations.

The interesting thing about yesterday’s trade news wasn’t in the details, because there weren’t many in President Trump’s message. He just said he’d have an “extended meeting” with President Xi at the G-20 gathering next week.

If you think back a week ago, there was a fear the two presidents wouldn’t even talk at all next week. Maybe it would have been a bit like ships passing in the night, with both avoiding each other’s presence. At least that scenario seems like it’s off the table, and now stocks are basically back to where they were six weeks ago, when it looked like a deal might be close. This doesn’t mean things will be all tied up in a bow next week. Issues are immense and lots of details have to get worked out.

The huge rally Tuesday shows just how much a single headline (in this case from Trump) can affect this headline-driven market. It also makes you wonder how much ground might get covered if a deal eventually happens. Another thing to potentially keep in mind: If the market can move this sharply on “good” trade news, how dramatic a move could there be if we get “bad” trade news? The S&P 500 Index (SPX) plunged more than 7% slide between early May and early June when tariff talks went south.

Early Wednesday, it looked like stocks might spend some time treading water in the hours leading up to the Fed decision. That wouldn’t be too surprising considering how things often go on Fed days. Stocks rose sharply in Asia earlier Wednesday but were mixed in Europe. Crude prices eased a bit and so did the dollar.

With the futures market signaling a more than 75% chance of rates staying unchanged today, the question is what sort of body language we see from Fed Chairman Jerome Powell at his press conference. There’s been a lot of focus on whether the Fed might remove the word “patience” from its vocabulary and indicate willingness to cut rates by next month. Some of yesterday’s rally probably reflects investors hoping for this.

There are also some analysts who say the Fed won’t change much of its language today and that bullish investors might end up being disappointed. Whatever happens, trading could be fast and furious in the hour or two after the decision, so anyone who plans to jump in might want to consider being cautious. There’s nothing wrong with stepping back and letting things settle down a bit before making a move.

Chances for a rate cut by July now stand at about 82%, futures prices indicate. That number is likely the one to watch if the Fed keeps rates in place today, and potentially an early indicator of what investors expect next. Also, consider keeping an eye on the Fed’s “dot plot” showing where Fed officials expect rates to go in the future. The last dot plot showed the Fed indicating a 25 basis point hike in 2020, but many analysts expect that to be trimmed to no change and for rate expectations to fall in years beyond that.

Back On Offense

Yesterday saw the S&P 500 Index (SPX) close above 2900 for the first time since May 6, breaking out of the tight trading range of between 2875 and 2900 it had been stuck in for several days. The SPX surged out of the opening gate and never fell below 2900 the entire session.

The peak on Tuesday was within 25 points of the SPX’s all-time intraday high of 2954 recorded May 1, and represented a major comeback from this month’s intraday low of 2728 posted June 3. The SPX has risen nearly 7% since then, with much of the strength over the last two weeks coming from so-called “defensive” sectors like Health Care and Utilities. These happen to be sectors that often benefit from a lower-rate environment.

A sector survey of Tuesday’s action makes things seem pretty clear: Investors were diving back into cyclical assets and getting out of “defensive” ones. Leading sectors included Industrials, Technology, Energy, and Financials. Those tend to be ones people often gravitate toward when they see economic strength. It’s notable that Financials rose more than 1% even though many investors apparently are hoping for a dovish message from the Fed later today. It’s traditionally harder for Financial firms to profit at lower rates.

Tech Tuesday

The Nasdaq (COMP), home to many Technology companies, had the best day of the major indices on Tuesday and continues to lead all indices with a nearly 20% year-to-date gain. Semiconductor stocks—which are closely tied to the trade situation with China—had a huge day, rising about 4%.
The FAANGs rose about 1.6%, but Facebook (NASDAQ:FB) retreated in what might have been some profit taking after a big rise since early this month. Two stocks that have a lot of exposure to trade with China have done pretty well this week, with Caterpillar (NYSE:CAT) and Apple (NASDAQ:AAPL) on the rise. AAPL had its best close since May 9, but couldn’t hold onto gains that took it above $200 intraday.

The sectors that wilted Tuesday included Utilities, Staples, and Real Estate. Both Utilities and Consumer Staples had outpaced the overall SPX over the last three months as investors fretted about a possible trade war and embraced what some see as less volatile, dividend-yielding stocks. Still, bond yields, another traditional metric of investor anxiety, remain really low at around 2.08%. That’s better than the 2.01% low recorded early Tuesday, but still might reflect some of the heavy risk-off attitude over the last month.

After the close today, investors will hear from Oracle (NYSE:ORCL) as the company reports fiscal Q4 earnings. Analysts expect declining revenue for the second-straight quarter in a tough competitive environment. It might be worth listening to the conference call to get a sense of how executives see geopolitical events affecting business.

FAANG Stockles Vs. Semiconductors (purple)
FAANG Stockles Vs. Semiconductors (purple)

Figure 1: CATCHING THE WAVE: Two closely-watched metrics that had been slow on the uptake of this month’s rally have joined it in a big way the last couple of days. This chart shows how FAANGs (candlestick) and semiconductors (purple line) have started to pop back. Data Sources: NYSE, Philadelphia Stock Exchange. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

More Fed Pondering: Amid investor hopes of the Fed sounding more dovish today, it might be worth considering a couple of reasons for caution going into the press conference and statement. The futures market predicts low odds of an actual cut, but futures prices can’t tell us what the Fed might say. There’s a growing sense that Fed Chair Jerome Powell might sound willing to ease up on the brake pedal, but there are arguments against that as well.

For one, some analysts think the Fed might want to get a look at what happens at G-20 next week before leaning toward a more dovish direction. There’s also the argument that by forecasting a willingness to lower rates, the Fed would essentially be admitting it made a mistake last December when it raised rates for the fourth time in 2018. It’s unclear if the Fed would be eager to do that, though it could cite weakening conditions abroad as the reason. In addition, a move toward lower rates might also make the Fed look like it’s yielding to pressure from the White House. The Fed is an independent body, but more than one president has expressed frustration with it over the years, including the current one. That was loud and clear as recently as Tuesday.

A Max By Any Other Name: This week, Boeing's (NYSE:BA) CFO said in an interview that he’s open to a brand change for the grounded 737 Max. Though BA started its history with planes named by number (707, 727, 737, 747), it’s more recently been giving planes names like “Dreamliner” and “Max.” If it wants to go back to a number for the Max, the question might be how it would differentiate the plane from its other 737s. Assuming BA does change the name, it wouldn’t be the first major company to try new branding for a product that came under scrutiny. Back in the 1980s, for instance, when people started getting more anxious about nutrition, a major cereal maker substituted the word “honey” for “sugar” in some product names. Whether kids noticed the difference or got any healthier is an open question.

However, other companies persisted with certain brand names even after issues with the products. One that comes to mind is the DC-10 airliner. Once that plane’s 1979 post-crash grounding ended (and it followed earlier incidents with the model), major airlines flew DC-10s for nearly 30 years with no name change and without seeming to lose passenger confidence. However, McDonnell Douglas, the airplane’s manufacturer, stopped making DC-10s in the early 1980s, citing lack of orders.

Commodities Carved Up: Crude jumped sharply on Tuesday on the positive trade news. However, it remains in a rut compared to recent highs, as do many other commodities. Sometimes weak commodities can reflect falling consumer and producer demand, especially for metals like copper that go into so many industrial products today. In that sense, copper is kind of a barometer for the global economy. Copper recently fell near its low for the year as stockpiles climbed, The Wall Street Journal reported. Coffee, the paper said, is near its lowest point in a decade amid a supply glut, and cotton prices are down sharply, too.

The article noted that commodities assets under management by active funds, including commodity trading advisers, or CTAs, fell nearly $15 billion last month to roughly $80 billion. That’s down from a January 2018 peak of $184 billion. Fewer assets allocated to CTAs could help explain some of the volatile commodity futures market action lately.

TD Ameritrade® commentary for educational purposes only. Member SIPC. Options involve risks and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.

Fed Alert: All Eyes On Powell And Company As Rate Decision Awaited
Fed Alert: All Eyes On Powell And Company As Rate Decision Awaited

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Francis Drake
Francis Drake Jun 19, 2019 1:56PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Too people use psychology .All market is controlled by systems like In -Q -Tel, a computer in Santa Monica University.It's a roulette not investing.
Francis Drake
Francis Drake Jun 19, 2019 1:53PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Stocks up or down after Fed is useless. Finacial world is too far from real world to exist for long time in this way.
Rick Anthony Gomes Boissiere
Rick Anthony Gomes Boissiere Jun 19, 2019 1:32PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
great analysis, thanks
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email