Today was a perfect example of how a new Fed Chairman can mess things up in the stock market with their tone-deaf Congressional testimony. Jerome Powell, in his first appearance, decided to say that fiscal policy was more simulative and that his outlook for the economy had strengthened. This was immediately interpreted by the bond bears that there could be a possibility of a fourth rate hike this year. The DOW, which had risen 84 points in the morning and the S&P that had been better by 10, turned around on a dime. At the closing bell, the DOW had lost 299 points, the S&P 500 was down 35, and the NASDAQ dropped 91 points on the session.
Breadth numbers were very negative and the VIX loved this volatility by rising 17% to 18.59.
Bond yields moved up. Earlier in the session the 10-year Treasury Note was down to around 2.85%. After Powell started talking, they spiked up to around 2.90% and the 2-year was back up to 2.27%. This is the one that is most sensitive to Fed policy.
The dollar was stronger on the higher rates with the Japanese yen in particular at 107.5. This caused gold to sell off down to $1,319 an ounce as that $1,355 resistance level appears to be a tough barrier to cross. Crude oil was also lower at $62.98 a barrel.
The S&P now trades around 18 times estimated earnings of $141 for 2018. Some people think it could be $151 if the tax bill helps most companies.
These are excerpts from Don Selkin’s Daily Market Notes, abbreviated and updated with permission from the author. Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analyses concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, Recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: Bloomberg Financial, Reuters, and the Associated Press.