1) A Somber Start to the Day
This morning, a gunman opened fire on Republicans at a baseball field in Alexandria, Virginia.
5 were shot, including Republican House Whip Steve Scalise.
When the news hit, SPX futures started slowly sinking down before bouncing back into the 8:30 a.m. Consumer Price Index and and Retail Sales reports.
Both numbers missed, with the CPI whiff getting much of the attention for good reason.
The Fed has acknowledged that its 2% inflation target is looking hard to reach, and today’s CPI number certainly isn’t helping.
Immediately, the dollar started sinking hard, and bank stocks dropped.
That wasn’t a shocker since these instruments typically do well on strong US economic data.
The SPX opened slightly green, but gradually dipped into the late morning.
Meanwhile, crude oil got walloped on the weekly US crude oil inventory report, which showed a huge build in gasoline supplies.
That pushed the S&P Energy ETF (XLE) and the Vaneck Vectors Oil Service ETF (OIH) way down at the bottom of my ETF leaderboard.
2) Da Fed!
Today, traders came in expecting a 25 bps rate hike from the Fed.
And they were hoping for some clarity on whether the Fed will move again in September.
Between the Fed’s dovish May Meeting Minutes and today’s weak CPI print, it looked like traders were bracing for a dovish report… and they were taken by surprise.
The Fed raised 25 basis points as expected, and acknowledged that inflationary trends were weak.
The bank also announced a balance sheet reduction program.
However, the Fed also said it would hike one more time this year, and suggested a total of 4 rate hikes in the next 18 months.
The hawks loved hearing that, and the US dollar, and bank stocks rose sharply into the close.
The S&P Financials ETF (XLF) finished 1.6% off its afternoon low, while gold and US Treasuries fell.
So it’s the same old song and dance — the Fed doesn’t hesitate to change course, perhaps in the interest of keeping market participants dazed and confused. I’m only half kidding…
3) Lackluster Stocks
Equity markets were slightly weak today, with the SPX finishing down -0.1% at 2437.92.
The Nasdaq underperformed for the 3rd time in 4 days with a -0.4% dip, though to be fair, that’s not exactly a big move.
The Russell 2000, which is in close focus as a barometer for traders’ risk tolerance, fell -0.6%.
However, biotechnology had a great with with the S&P Biotech ETF (XBI) rising 0.7% in a major show of relative strength.
So overall, while the shorts keep talking a mighty big game, it feels like the bulls are still in control.
Yes, the Nasdaq is lagging, but it’s still barely off all-time highs, and it’s only fair to expect some profit taking in names like Apple (AAPL) and Facebook (FB).
They’ve been delivering investors might big gains this year, and what goes up must come down.
For the bears to score a real victory, they’ve got to drive a sustained move down and introduce some real fear in the market
Until then, it looks like “buy the dip” is here to stay.