View From the Hill: Bulls Retreat From Prospect of Interest Rate Hike

Posted on Posted in Views From The Hill

By J Clinton Hill, Capital Markets Strategist @ Hillbent.com

Market Commentary: August 16, 2016

bulls-and-bears4Perhaps the markets are not as resilient as they appear. It took little jawboning by Fed president Dudley, who merely mentioned the possibility of a rate hike, and the bulls turned tail and ran. As it has been the entire summer, volume was light. This tells me that today was only a test to probe bullish demand for stocks. Prices will have much further to fall before we any signs of capitulation selling occur.

Oh well, one day does not a trend make or initiate. Tomorrow’s energy report by the EIA and release of the most recent FOMC minutes will lend more support to either bulls or bears. However, my guess is that the energy report will be bearish and the Fed may have tightened its bias a bit as the economic data has been trending more towards positive than negative. Then again, why guess when we can simply wait until tomorrow to find out for certain?

 

spy-2-4hour-aug-16-2016
Click to enlarge

 


Market Moving Events

Bullish Events

  • Economy / Manufacturing: Industrial Production for July-2016 stronger than expected. Production surged to +0.7% vs. prior revised @ +0.4% and consensus @ +0.03%. Manufacturing increased @ +0.5% vs. prior revised @ +0.3% and consensus @ +0.2%. Capacity Utilization was @ 75.9% vs. prior @ 75.4% and consensus @ 75.5%.

 

Bearish Events

  • Central Banks / USA: NY Fed President, William Dudley, stated possibility for a September rate hike as economy moves closer to conditions that make it appropriate, e.g. “tightening” labor market and inflation moving closer to 2% target rate.
  • Real Estate / Residential: Housing Starts for July-2016 increased to 1.211mm vs. prior @ 1.189mm and consensus @ 1.180. However, permits were weaker @ 1.152mm vs. prior @ 1.153mm and consensus @ 1.160mm.

 

Neutral Events

  • Economy / Inflation: July-2016 CPI report was flat @ 0.0% vs. 0.2 previous month. Yr/yr change (less food & energy) was 2.2% vs. 2.3% previous.

 


ETF Performance Summary: August 16, 2016

I’ll keep the comments brief…

  • Commodities (DBC) distinguished themselves as the top asset class performer, again thanks to US Oil (USO). Gold (GLD) also increased for its second consecutive day as it finds support at its 50-day moving average.
  • Investors tamped on the brakes for Equities and especially curbed their appetites towards small caps and emerging markets. However, they were not the only asset class to shy away from the threat of higher rates.
  • Bonds and Real Estate retreated as well.
  • Currencies did not perform as expected.The Dollar (UUP) weakened on the prospects of higher rates and sold off nearly -1% while the Euro (FXE) and Yen (FXY) advanced.

 

 

1YR RS Equities Close % Chg 50D-MA 200D-MA 50-v-200
 Equities
97 DJ-30 Industrials (DIA) 185.76 -0.41% 2.35% 6.19% 3.75%
96 SP-500 (SPY) 217.96 -0.52% 2.36% 6.36% 3.91%
97 Nasdaq-100 (QQQ) 117.05 -0.55% 5.09% 7.61% 2.40%
96 Russell-2k (IWM) 122.40 -0.81% 3.78% 9.53% 5.54%
62 EAFE (EFA) 58.95 -0.15% 3.55% 2.93% -0.59%
97 Emerging Mkts (EEM) 37.70 -0.45% 7.38% 13.55% 5.75%
53 Europe FTSE (VGK) 49.07 -0.04% 3.59% 1.53% -1.99%
98 Latin America 40 (ILF) 29.44 -0.41% 10.34% 22.77% 11.26%
97 Brazil (EWZ) 34.59 -0.72% 12.09% 35.33% 20.74%
76 Japan (EWJ) 12.29 -0.89% 4.06% 4.95% 0.85%
97 Pacific Ex-Japan (EPP) 41.93 -0.26% 4.28% 9.11% 4.63%
78 FTSE China 25 (FXI) 37.79 -0.45% 8.62% 11.64% 2.78%
2 VIX Short-Term Futures (VXX) 37.58 3.41% -23.96% -48.14% -31.81%
Bonds / Fixed Income
80 20+ Yr Treasury (TLT) 138.39 -0.27% 0.09% 6.72% 6.63%
84 Aggregate Bond Fund (AGG) 112.36 -0.06% 0.06% 1.92% 1.86%
78 Treasury Inflation Protection (TIP) 115.63 -0.14% -0.40% 2.23% 2.63%
89 Investop Corp Bond (LQD) 123.16 -0.18% 0.53% 4.46% 3.91%
98 High Yield Corp Bond (HYG) 86.39 -0.21% 1.80% 5.11% 3.25%
Currencies
24 US Dollar Bullish (UUP) 24.49 -0.89% -1.05% -2.24% -1.20%
57 Euro Trust (FXE) 109.89 0.84% 1.12% 1.45% 0.32%
100 Japanese Yen Trust (FXY) 96.36 0.99% 3.40% 11.48% 7.81%
Commodities
77 DB Commodity Index (DBC) 14.92 0.81% 0.47% 7.42% 6.91%
91 Gold (GLD) 128.47 0.49% 1.77% 10.99% 9.06%
38 US Oil (USO) 10.92 1.49% 0.18% 1.20% 1.02%
Real Estate
84 DJ Real Estate (IYR) 82.62 -1.17% 0.30% 7.72% 7.39%
87 DJ Home Construction (ITB) 28.87 -0.45% 1.76% 7.88% 6.02%
81 Residential Real Estate Index (REZ) 66.55 -1.28% -0.42% 4.64% 5.08%
Major Equity Sectors
96 Consumer Discretionary (XLY) 81.69 -0.57% 2.18% 4.65% 2.42%
89 Consumer Staples (XLP) 54.71 -0.44% 0.18% 5.13% 4.94%
88 Energy (XLE) 69.36 0.16% 2.32% 8.94% 6.47%
80 Financials (XLF) 23.96 -0.25% 3.05% 4.31% 1.22%
89 Healthcare (XLV) 74.24 -0.89% 1.53% 5.66% 4.07%
97 Industrials (XLI) 58.69 -0.44% 2.62% 7.71% 4.96%
96 Materials (XLB) 48.65 -0.53% 1.84% 8.47% 6.51%
98 Technology / Info (VGT) 117.40 -0.52% 5.47% 9.29% 3.62%
73 Telecom (IYZ) 32.10 -1.50% -2.96% 5.73% 8.96%
71 Utilities (XLU) 49.53 -1.18% -3.58% 4.58% 8.47%

 

Signing off at Hillbent…

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