In the “big-big” picture, the FOMC left rates unchanged as expected with possibility for an increase in June if warranted. Based upon current economic data and the Fed’s emphasis on a targeted inflation rate of 2%, which it has indicated a willingness to tolerate slightly higher, it is unlikely that there will be an increase. Interest rate sensitive Utilities (XLU) @ +1.45% captured enough bids to make a new 5-day high and regain support of their 50-day moving average.
Meanwhile, after a bullish energy supply inventory report released by the EIA, the June-2016 contract for WTI Crude Oil closed up almost 3% and, more importantly, above its 200 day moving average. Amongst ETFs, the US Oil Fund (USO) @ +3.05% and Energy Sector (XLE) @ +1.90% were market leaders.
A review of the broader indexes shows that the uptrend for the SP-500 (SPY) remains bullish, but a successful test of its current resistance levels is required to bring in new buyers. As we are approaching the seasonally slow season of May, this might be a tall order. All of the major US equity indices finished the day in positive territory, with the exception of the Nasdaq-100 (QQQ), which was weighed down by Apple’s (AAPL) disappointing quarterly performance and first quarterly decline in revenue in over 10 years. (Expect the market to recover some of these losses as Facebook (FB) reported earnings that exceeded expectations and traded up significantly in after-hours trading.)
However, the most bullish activity in equities has been in Latin America. If you have been following our reports regularly, this has been evident for quite some time. The Latin America 40 (ILF) @ +2.43% and Brazil (EWZ) @ +2.49% continue to outperform. Both are trading above their 200-day moving averages and achieved new 6-month and year-to-date highs on higher volume. For now, the only real bear market is the VIX (VXX), whose 50-day moving average is getting closer to trading below the 200-day average.
Other asset classes responding favorably to the Fed’s decision to stand down on any rate hikes were Bonds and Commodities. (See our performance summary table below.)