Stock Market Cooing after FOMC Meeting Well, the FOMC and Fed Chair Yellen did what we thought they would, offering a dovish line of thinking oriented around inflation trends that appeared to placate the stock market. Following a directive that was ridiculed for its semantics, the major indices extended a bargain-hunting rally that was already underway and ended pretty much at their highs for the session. The Russell 2000 led the pack with a 3.1% gain. Participants took to heart Fed Chair Yellens declaration that the FOMC is unlikely to begin the normalization process for a couple of meetings. She said that of course while emphasizing the Feds data-dependent nature, allowing for the possibility that rates could rise sooner than expected, or later than expected, based on incoming data. In any event, it was not lost on market participants that the 2015 FOMC will include a new batch of voting Fed presidents -- Lockhart (Atlanta), Evans (Chicago), Lacker (Richmond), and Williams (San Francisco) -- with more dovish to centrist dispositions that suggest there is apt to be a greater willingness to be more patient in beginning to normalize policy than the outgoing 2014 FOMC might have shown. And patient was the word of the day Wednesday. According to the FOMC, it can be patient in beginning to normalize policy and that perspective should be seen as the same as saying it will likely be appropriate to maintain the target range for the federal funds rate at 0 to 1/4 percent for a considerable time. The way we see it is that the FOMC basically remains synonymous with dovish. There has been carryover momentum today, evidenced by sizable gains in many foreign markets and the S&P futures trading 1.3% above fair value. The latter will cement expectations for the cash market to start today on a decidedly positive note. A rebound in oil prices is helping the early tone. Both WTI and Brent crude futures are up about 2.0%, although they had been up more than 3.0% earlier. The S&P 500 energy sector led all comers Wednesday with a 4.2% gain that diverged sharply from a weaker trend in oil prices. That outperformance engendered some confidence in the idea that selling efforts have been exhausted for the time being and that the sector is ripe at least for a short-term rally. That mentality will be put to the test today knowing that Marathon Oil (MRO) said its 2015 capital spending program will be about 20% below 2014 levels, substantiating investor concerns that lower oil prices will lead to reduced spending. The stocks to watch for a sentiment check, then, are the oil services and drilling stocks since they will be impacted the most by lower levels of capital spending for exploration. In other news, Oracle (ORCL) posted better than expected fiscal second quarter results, Amgen (AMGN) raised its quarterly dividend by 30%, new home prices in China fell for a third straight month, declining 3.7% in November, and Russian leader (or is it noted economist?) Vladimir Putin believes the Russian economy will bounce back within two years. Separately, the latest initial claims report produced more encouraging news. It revealed initial claims for the week ending December 13 -- the week in which the household survey for the December employment report was carried out -- declined by 3,000 to 289,000 (Briefing consensus 292,000). That will solidify expectations that nonfarm payrolls will be up by at least 200,000 in December. Continuing claims, meanwhile, plummeted by 137,000 for the week ending December 6 to 2.373 million (Briefing consensus 2.510 mln). The DOL did not provide any explanation for the steep drop, so well chalk it up to normal volatility.
Posted on: Thu, 18 Dec 2014 14:16:37 +0000
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