The Fed’s non-move lets the bulls back in

By |2016-09-22T17:48:24+00:00September 22nd, 2016|Uncategorized|
bullUS equity investors received a shot of monetary accommodative confidence from the FOMC yesterday and in the process rallied sharply. The S&P 500 (+1.09%), Dow Industrials (+0.90%) and Nasdaq (+1.03%) moved higher to regain some recently lost ground. Volume also picked up on both the Nasdaq (+18.06%) and NYSE (+18.59%). The trade higher yesterday left the Dow Industrials with a P/E of 17.61 and the S&P 500 with a P/E of 20.36, lofty by historical standards.
In order for US equity markets to remain at these lofty levels, Q3 earnings season, which commences in two weeks, will have to reflect improving revenue metrics for the S&P 500 in addition to an uptick in EPS performance. It could happen, if it does, barring any unforeseen negative economic or geo-political developments over the next quarter, it is highly likely that the Fed will raise in December. But for the time being, traders are playing with house money. At this stage of the cycle, there are inherent risks associated with that mindset.
Monday’s release of the Housing Market Index, by the National Association of Home Builders, continued to provide the home building sector and broader market with some lift. Consensus for the September reading was calling for 60. The actual reading was a stronger than expected 65. August’s reading was 60.Tuesday’s Housing Starts – Level – SAAR data for August was 1.142M versus consensus calling for 1.190M. Again, a strong sector for the economy and for equity markets in spite of August’s minor miss. From where I sit, given the fits and starts that the crude market has given equities, the EIA Petroleum Status Report was the most important data of the week thus far away from the FOMC narrative. The EIA report released yesterday, for the previous week, provided some meaningful lift to crude prices and by proxy, the energy sector. Crude inventories contracted by 6.2Mbbl in the period, Gasoline inventories shrank by 3.2Mbbl and Distillates inventories rose a relatively modest 2.2Mbbl.
By the end of this week a great deal of economic data will have been provided for investors. Though these highlights matter, now that the September FOMC meeting and announcement is in the rear view mirror, any market reaction to the data releases will likely be relatively muted. I will simply mention the most potentially market moving.   
8:30 AM EST
Weekly jobless Claims (c. 261k)
8:30 AM EST
Chicago Fed National Activity Index (c. 0.15)
9:00 AM EST
FHFA House Price Index (c. 0.4%)
10:00 AM EST
Existing Home Sales (5.440M)
10:00 AM EST
Leading Indicators (c. 01%)
11:00 AM EST
Kansas City Fed Manufacturing Index
9:45 AM EST
PMI Manufacturing Index Flash (c. 52)
10:00 AM EST
Atlanta Fed Business Inflation Expectations
12:00 PM EST
Regional Fed Presidents Panel – should be interesting

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