Transitory Fed, Sparks Transitory Pullback
The market remains very strong as it refuses to pullback in a meaningful fashion. Investors digested a slew of earnings, economic data and the latest Fed data last week. The big headline came on Wednesday when Jay Powell did not cut rates. Instead, he said that the current state of low inflation is transitory. That word sent stocks lower because many people were expecting the Fed to cut rates later this year. Once again, the pullback did not last long as buyers showed up Friday morning and sent stocks higher. The fact that the market refuses to fall clearly shows us how strong the market is right now. Additionally, the inability to fall strengths the case for a melt-up before the market eventually tops out.
Stocks were quiet on Monday as investors waited for a slew of earnings and economic data to be released later this week. So far, over 230 companies in the S&P 500 have reported quarterly results and close to 80% have beat estimates according to data from FactSet. Stocks opened lower on Tuesday after shares of Alphabet fell more than 8% after reporting earnings. Alphabet had its worst day since Dec. 1, 2008 after posting revenue of $36.34 billion in the first quarter, missing estimates of $37.33 billion. The company said the weaker revenue was due to changes in YouTube’s algorithm to help filter out negative content. After Tuesday’s close Apple reported earnings and the stock rallied on the news. On Wednesday, the market opened higher but closed lower. Before the open ADP and Moody’s Analytics said private payrolls rose by 275,000 in April, easily beating the Street’s estimate for 177,000. In the afternoon, the Fed held rates steady and said it does not plan on cutting rates anytime soon when it said the current inflation is transitory. That word sent stocks lower because many people were expecting the Fed to cut rates later this year.
Thursday & Friday Action:
The market fell on Thursday after House Speaker Nancy Pelosi, accused Attorney General William Bar, of lying to Congress. Clearly, that is not a light statement and that could spark more partisan infighting which could hurt the market if it gets worse. Before Friday’s open, the Labor Department said US employers added +263,000 new jobs last month while the unemployment rate fell to 3.6%. That was the lowest unemployment rate since December 1969. Meanwhile, the report easily beat the Street’s estimate of 190,000 and a 3.8% jobless rate. The strong rally on Friday erased most of earlier decline.
Market Outlook: Bullish Tailwind Continues
The market remains very strong after the Federal Reserve reversed its stance and moved back into the easy money camp. Near-term resistance is 2018’s high while near-term support is March 2019’s low, then the 200 and 50 DMA lines, and then 2018’s low. As always, keep your losses small and never argue with the tape.
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