Market Update: Wednesday, September 21, 2016

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  • Global equities rise on BOJ announcement, ahead of Fed decision. U.S. markets opened higher this morning ahead of the Federal Reserve Bank (Fed) announcement and after the Bank of Japan (BOJ) left rates unchanged, instead choosing to tweak its approach to monetary policy in an effort to steepen the yield curve, sending bank stocks soaring and pushing the Nikkei Index up 1.9%. European equities are also basking in the positive sentiment, as markets in France and Germany both advanced 1% earlier in the day. Today’s strength contrasts with yesterday’s action in which the S&P 500 finished flat, as gains slipped away at the end of the session. Energy stocks (-0.8%) posted the largest decline on Tuesday while healthcare (+0.4%) outperformed. A 2% rebound in WTI crude oil ($45/barrel) is further elevating market sentiment. Meanwhile, COMEX gold ($1331/oz.) is higher by 1% and Treasuries are mixed as the yield on the 10-year note continues to consolidate near 1.70%.

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  • FOMC preview. The Fed’s sixth policy meeting of 2016 will conclude today, and the market puts the odds of a Fed rate hike today at about 20%. At 2 p.m. ET, the Fed will release a statement, a new set of economic forecasts (gross domestic product [GDP], inflation, unemployment), and a new set of “dot plots” (where it thinks the fed funds rate will be at year end 2016, 2017, 2018, 2019, and in the “long run”). At 2:30 p.m. ET, Fed Chair Janet Yellen will hold her third press conference of 2016, and her first public appearance since late August 2016. Please see this week’s Weekly Economic Commentary for more details.
  • The Bank of Japan did…a lot. The Bank of Japan (BOJ) made an announcement overnight, but it’s hard to characterize exactly what it did. On some level, monetary policy was left unchanged, rates did not change, nor was there an announcement of overall expansion of its quantitative easing (QE) But it did announce two changes in policy tools. First, the BOJ agreed to try to overshoot the bank’s 2% inflation target, which seems odd given that it has been unable to achieve anywhere near that level of inflation. Second, it announced a policy to manage the Japanese yield curve; specifically, to steepen the curve to improve the health and profitability of banks.
  • Another slow day. The S&P 500 gained 0.03% yesterday on the heels of moving 0.00% the day before. With the Fed and Bank of Japan decisions coming up, it is clear no one wanted to make any big moves. To put the last two days in perspective, this was the closest to flat that two straight days have been since April 2011. Should today be flat (close between 0.03% and -0.03%) this would be the first time since April 1943 that happened three straight days. Lastly, in 4 of the past 13 days the S&P 500 closed between 0.1% and -0.1%; the last time that happened was June 1995.
  • Welcome to the worst day of the worst month. Here’s how to sum up today: it is the worst day, of the worst week, of the worst month of the year. That’s right, September 21 is green less frequently than any other day during September, higher 38.3% of the time since 1950. As we noted on the blog on Monday, this is the 38th week of the year, which is also the worst week of the year. Lastly, since 1928, September is down 1.06% on average, making it the worst performing month. We will take a closer look at this weakness today on the LPL Research blog.
  • Earnings season is several weeks away but some noteworthy August quarter-end companies reported results overnight. We got raised guidance (FedEx, Adobe), strong cloud computing demand (Adobe) and a big capital return (Microsoft) in tech, a positive housing data point (KB Home), and even some (early) holiday shopping optimism (FedEx). We were also reminded that currency headwinds have not completely dissipated (General Mills). Read-throughs from a small handful of companies can be misleading, but we are encouraged by the support for technology, industrials, and homebuilders.

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Wednesday

  • FOMC Statement
  • Dot Plot and Economic Forecast
  • Yellen Press Conference
  • Japan: Bank of Japan Meeting (No Change Expected)

Thursday

 Friday

  • Markit Mfg. PMI (Sep)
  • Mester (Hawk)
  • Harker (Hawk)
  • Lockhart (Dove)
  • Eurozone: Markit Mfg. PMI (Sep)
  • Japan: Nikkei Japan Mfg. PMI (Sep)

Click Here for our detailed Weekly Economic Calendar

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