View From the Hill: Risk Assets Rally to Recover Losses After Release of FOMC Minutes

Posted on Posted in Views From The Hill

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

Market Commentary: August 17, 2016

bulls-and-bears4At the beginning of today’s trading session, stocks and bonds both continued in lock-step with yesterday’s pullback, but then rallied after release of the FOMC minutes. With no definite signs of tightening being favored by the majority of the committee’s voting members, risk investors were given another reprieve and rewarded for their patience.

In addition to this, a bullish energy report revealing larger than expected contractions in oil and gasoline inventories also helped to stabilize the market.

Volume for the SPY, the S&P 500’s exchange traded fund, traded on -22% lower than average volume. Market momentum has also resumed its deceleration, albeit still in positive territory.

 

spy-daily-aug-17-2016
Click to enlarge

 


Market Moving Events

Bullish

  • Central Banks / USA: FOMC minutes revealed members were split on justification for a rate hike before year-end. However, the overall majority still favors no action, preferring further confirmation that inflation is actually rising and weighing international risks, e.g. China, Brexit, and European/Italian banking concerns.
  • Commodities / Energy: The EIA surprisingly reported a -2.508mm barrels decline in crude oil inventories vs estimates @ +0.522mm and last week’s build @ +1.055mm. A -2.724mm barrels draw-down in gasoline inventories which exceeded estimates @ -1.638mm and almost matched last week’s draw @ -2.807mm.

Bearish

  • n/a

Neutral

  • n/a

 


ETF Performance Summary: August 17, 2016

  • Equities: Large-cap and blue chip US stocks are maintaining their resiliency in this current environment. Faring less well are small caps and emerging markets. One notable outlier has been Japan (EWJ), which has gained over +21% from its March-2016 low, despite a stronger Yen currency which has risen an almost equal amount during the same period.
  • Bonds / Fixed Income: Bonds caught a big break today from the Fed and bounced back in resounding fashion. Despite their pullbacks in price, they never violated their bullish channels.
  • Currencies: A review of price patterns for the US Dollar (UUP) looks more and more like the Fed is losing its credibility. The USA is in better shape than most developed economies and even some key developing ones as well, yet the currency weaken. Meanwhile the Euro (FXE) has bounced up and down and thus provided forex traders plenty of opportunities while it takes time to sort out its own mess. The rising Yen (FXY) has had zero impact on the Nikkei-225. The markets overall are so discombobulated that not even the reliable “carry-trade” works anymore.
  • Commodities: Gold (GLD) is not being sold. Instead it is consolidating and could likely explode on any signs of bad news as its trend remains bullish. DB Commodities (DBC) and US Oil Fund (USO) are fast approaching resistance at previous topping patterns.
  • Real Estate: This technical outlook remains bullish, but the group is undergoing consolidation and a minor correction.

 

 

1YR RS Equities Close % Chg 50D-MA 200D-MA 50-v-200
 Equities
98 DJ-30 Industrials (DIA) 186.10 0.18% 2.47% 6.36% 3.79%
97 SP-500 (SPY) 218.37 0.19% 2.49% 6.54% 3.95%
98 Nasdaq-100 (QQQ) 117.26 0.18% 5.16% 7.79% 2.50%
95 Russell-2k (IWM) 122.04 -0.29% 3.40% 9.18% 5.59%
63 EAFE (EFA) 58.93 -0.03% 3.53% 2.92% -0.59%
95 Emerging Mkts (EEM) 37.46 -0.64% 6.51% 12.80% 5.90%
53 Europe FTSE (VGK) 48.99 -0.16% 3.49% 1.39% -2.03%
97 Latin America 40 (ILF) 29.33 -0.37% 9.60% 22.16% 11.45%
97 Brazil (EWZ) 34.52 -0.20% 11.35% 34.74% 21.00%
82 Japan (EWJ) 12.39 0.81% 4.82% 5.72% 0.85%
96 Pacific Ex-Japan (EPP) 41.87 -0.14% 4.05% 8.89% 4.66%
76 FTSE China 25 (FXI) 37.53 -0.69% 7.69% 10.90% 2.98%
1 VIX Short-Term Futures (VXX) 36.58 -2.66% -25.54% -49.39% -32.03%
 
  Bonds / Fixed Income
83 20+ Yr Treasury (TLT) 139.22 0.60% 0.59% 7.30% 6.67%
88 Aggregate Bond Fund (AGG) 112.57 0.19% 0.23% 2.10% 1.86%
82 Treasury Inflation Protection (TIP) 115.98 0.30% -0.10% 2.52% 2.63%
92 Investop Corp Bond (LQD) 123.50 0.28% 0.75% 4.72% 3.94%
99 High Yield Corp Bond (HYG) 86.51 0.14% 1.90% 5.26% 3.30%
 
  Currencies
25 US Dollar Bullish (UUP) 24.51 0.08% -1.01% -2.12% -1.12%
57 Euro Trust (FXE) 109.92 0.03% 1.16% 1.47% 0.30%
99 Japanese Yen Trust (FXY) 96.40 0.04% 3.31% 11.42% 7.85%
 
  Commodities
79 DB Commodity Index (DBC) 14.98 0.40% 0.88% 7.85% 6.91%
91 Gold (GLD) 128.50 0.02% 1.64% 10.93% 9.14%
39 US Oil (USO) 10.99 0.64% 1.01% 2.04% 1.02%
   
  Real Estate  
85 DJ Real Estate (IYR) 82.86 0.29% 0.50% 7.97% 7.44%
83 DJ Home Construction (ITB) 28.58 -1.00% 0.70% 6.80% 6.05%
83 Residential Real Estate Index (REZ) 66.82 0.41% -0.10% 5.01% 5.12%
 
  Major Equity Sectors
95 Consumer Discretionary (XLY) 81.50 -0.23% 1.89% 4.39% 2.46%
91 Consumer Staples (XLP) 54.86 0.27% 0.40% 5.38% 4.96%
89 Energy (XLE) 69.57 0.30% 2.63% 9.25% 6.45%
81 Financials (XLF) 24.04 0.33% 3.35% 4.66% 1.26%
90 Healthcare (XLV) 74.39 0.20% 1.68% 5.86% 4.11%
99 Industrials (XLI) 58.86 0.29% 2.83% 7.96% 4.99%
96 Materials (XLB) 48.61 -0.08% 1.74% 8.34% 6.49%
97 Technology / Info (VGT) 117.25 -0.13% 5.20% 9.12% 3.72%
71 Telecom (IYZ) 31.92 -0.56% -3.54% 5.10% 8.96%
77 Utilities (XLU) 50.27 1.49% -2.14% 6.08% 8.40%

 

Signing off @ Hillbent…

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