Market Update: Thursday, March 17, 2016


  • Stocks breathe sigh of relief as Fed signals just two rate hikes. The broad markets advanced Wednesday after the Federal Reserve Bank (Fed) kept rates at current levels and reduced its outlook for rate hikes this year. The Dow closed at its highest level of 2016 and is now up more than 10% from the February lows. On a sector level, energy and materials led the way as WTI crude oil rallied 4.7% to climb back above $38, while COMEX gold declined 0.2%. Treasuries, which appeared to largely have anticipated the Fed’s move, saw the 10-year yield close down 0.05% to 1.91%. Final tallies: Dow +74.23 to 17325.76, Nasdaq +35.30 to 4763.97, S&P 500 +11.29 (+0.56%) to 2027.89.
  • U.S. pauses after Fed; currency, commodities drive foreign stocks. U.S. equities are lower this morning as traders weigh the implications of the Fed’s interest rate outlook and digest another round of economic data, including jobless claims and leading indicators. Lowered expectations for future hikes this year are pressuring the dollar, which triggered rallies in gold and oil, as well as Asian equities overnight; though Japan’s Nikkei Index finished slightly lower on yen strength after trading up as much as 1.6%. European indexes are falling midday after Consumer Price Index (CPI) data stoked deflation concerns, and a rising euro is also adding to the sell-off. Meanwhile, 10-year Treasury yields, are continuing to fall after yesterday’s 0.05% drop.


  • FOMC takes a step (or two) back. Citing global economic weakness and tighter financial conditions, the Fed’s policymaking arm, the Federal Open Market Committee (FOMC), reduced the number of 0.25% rate hikes it said it will do this year from four to two. In addition, the FOMC lowered its long-run “neutral” fed funds rate by 0.25%, all while talking up the U.S. economy. The result is that, for the first time in a while, the Fed and the market are in general agreement on how many rate hikes will occur this year, removing one of the many imbalances that had buffeted the global economy and financial markets in recent months. Via Fed Chair Yellen’s press conference, we learned that the FOMC is not considering negative rates, oil prices only need to stabilize at today’s levels for the Fed to hike rates, every FOMC meeting is a live meeting, and the Fed has not yet seen enough hard evidence that wages are accelerating.
  • New claims for unemployment rose 7,000 to 265,000 in the week ending March 12. The four-week average remained near 268,000. The latest level on claims matches the lows seen last summer and fall, which were the lowest in 42 years (1973). Claims in the past 26 weeks are up 1,000. In the past, claims need to rise more than 75,000 over a six-month period to indicate recession, so clearly there is no recession signal from claims. The level of claims continues to point to a solid labor market. Please see the Weekly Economic Commentary, “What Do Claims Claim?” for more details.
  • Oil prices continue to climb. West Texas crude oil rose over 5% on Wednesday, as U.S. oil inventories increased by only 1.3 million barrels, compared to the 3.2 million barrel expected increase. OPEC is now planning a meeting on April 17, to discuss the long-awaited production freeze. Retail gasoline prices have increased with oil, especially on the West Coast and in the Midwest.
  • National People’s Congress is adjourned. The Chinese National People’s Congress ended with Premier Li’s annual press conference, with details being released throughout the two-week meeting. Though reforms of the major state-owned enterprises were promised, Li rejected calls for mass layoffs and suggested that displaced workers would be given generous resettlement and severance packages. Other reforms, including social welfare, were promised but with little detail. Expectations for major policy announcements were low, so we cannot say the results were disappointing. However, there was little said that had not been suggested prior to the meeting.
  • March seasonality is working. The S&P 500 bounced 0.6% after two small range days. It managed to close above its 200-day moving average yet again and is now less than 5% away from a new all-time high. The last time it was that close to a new high was on December 31, 2015. During the past 10 years, March has been the second strongest month (April is the strongest) and that seasonality is playing out so far this year. Month to date, the S&P 500 is up 4.9%, which is the best monthly gain since 8.3% in October 2015. Remember, the S&P 500 dropped three consecutive months for the first time in more than four years in December, January, and February. The bulls have bounced back thus far in March.
  • Encouraging signs. The market’s strong rebound in March is encouraging, especially considering the fundamental picture has not changed all that much. The S&P 500 year-to-date total return is now essentially flat (-0.3%). Our expectations for a modestly positive and volatile year for stocks have not changed, despite a more market-friendly Fed posture (perhaps the biggest fundamental change), relatively steady U.S. economy, weaker U.S. dollar, oil price rebound, and relative financial stability in China.



  • Philadelphia Fed Manufacturing Index (Mar)
  • Leading Indicators (Feb)
  • UK: Bank of England Meeting (No Change Expected)
  • Switzerland: Swiss National Bank Meeting (No Change Expected)
  • China: Property Price Indexes (Feb)



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