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TRADING THE WEEK: Back to Basics
Traders Magazine Online News, May 30, 2017
Finally, back to market basics.
The trading markets went back to trading on the economic basics rather than on tweets, Presidential soundbites and pictures, and politics. Just when the markets looked ready to plummet lower along came President Trump’s first overseas trip last week. The trip to the Middle East and Europe came at the perfect time as it took market focus off of the administration’s follies and back on the economic fundamentals.
The FOMC minutes from the May 2-3 meeting on Wednesday showed that the central bank seems to be on pace for a June 14 rate hike. Larry Peruzzi, Managing Director International Trading at Mischler Financial Group told Traders Magazine that the Fed dismissed 1Q slower growth and felt that higher broader growth is on the horizon. While the probability a June hike slightly diminished after the minutes release by week’s end markets had priced in a 92% chance of a 25 bps hike. [IMGAP(1)]
Confirming this, last week’s FOMC minutes were released and Federal Reserve members said they will need to soon start moving interest rates higher again, as well as allow certain securities to mature. By allowing securities to mature, the Federal Reserve doesn’t have to sell off its balance sheet which has the same impact as tightening the money supply or raising interest rates. In fact, market pros expect the FOMC to vote to raise interest rates at its June 13 -14 two-day meeting.
But until then, Peruzzi said basic economic fundamentals rule the markets.
“The week also saw some retailing firms release earnings and on a whole traditional retailers continue to lose market share but investors were encouraged by pockets of strength in a few names such as Best Buy, Home Depot and of course Amazon,” Peruzzi added. “Crude oil’s two-week rally rolled over as OPEC’s production cuts were seen as being insufficient. Last Saturday’s news that The United States sealed a multibillion arms deal with Saudi Arabia helped lift defense stocks such as Lockheed Martin, General Dynamics and Boeing to all-time highs.”
But aside from the aforementioned market positives there were negatives as well. ISIS’s attack on a concert in Manchester, England and President Trump gave the market a few awkward moments at the NATO meeting on Thursday. But as Peruzzi noted, neither was enough to keep the S&P 500 and NASDAQ from hitting new all-time highs.
“We continue to see institutional money flow into the market but we also saw an uptick in retail flows entering the market,” he reported. “Overseas the U.K pound hit monthly low versus the Euro and U.S dollar on uncertain election polling numbers and Brazil’s bribery/ Presidential drama continues to amaze us.”
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