FOMC Minutes Get Blamed for Reversal

The love – hate relationship with the Fed continues… as investors don’t like what the FOMC minutes stated in relationship to when short term rates will start to rise. As we discussed in the updates last week, one item investors had checked off their list of worries was a potential rate hike this fall versus 2015. Evidently the working was not strong enough and the division on the subject too divided to make peace with investors. The selling in the afternoon took the Dow from being up to down 87 points on the close. The intraday swing was enough to catch my attention and something to watch as we head into tomorrow’s trading. The indexes closed at or near their respective lows on the day. It also ended an eight-day win streak for the Dow.

A report from Citigroup showed the economic surprise indicator moves into negative territory. The indicator measures how the actual data measures against the estimates. This confirms what we have been discussing since December… the data is not getting better it is actually lagging what others are saying, i.e. the Fed and Wall Street. The latest disappointment comes from the 16% decline in the housing starts announced today. Add that to the disappointing ISM Manufacturing data and you have reasons to worry.

Today’s decline in the major indexes was not significant, but it was worthy of note. The S&P 500 index hit 1847 and was spitting distance from the previous high, but it closed at 1828. The ‘V’ bottom reversal is being tested for the first time and we will be watching to see how it plays out tomorrow. I am not an alarmist, but I do like to see how things act when they hit resistance points and news hits the tape at the same time.

Financials dropped fell 1.3% as it continues to lag and in some ways lead the downside risk. Transports likewise lost 1.3% today and that reversed the upside move to keep the index in a trading range. I am watching both as indicators for the current environment as it continues to unfold short term. Tomorrow promises to be a day of interest relative to the broad markets. Adjust your stops accordingly and proceed with caution. Watch for the morning update to expand on these and other sectors of interest.