The markets continue their recovery from last Wednesday. For the fifth straight day, markets closed in the green, and they’re on track to make it six straight days today.
On Tuesday, the markets received a boost from defense and energy stocks after President Trump and the Saudis struck a deal on a $150 billion arms package. Most of those billions would go to the coffers of Boeing (BA), General Dynamics (GD), Raytheon (RTN) and Lockheed Martin (LMT).
Wednesday, it was the Federal Reserve that ignited the S&P 500 (^GSPC, SPY) rally to new highs, closing up +0.2% to reach 2404. Both the Dow (^DJI, DIA) and Nasdaq (^IXIC, QQQ) closed up +0.4% each. Volume on the NYSE picked up ever so slightly, but on the Nasdaq, it fell a bit.
The credit for that S&P 500 rally goes mainly to the afternoon push after the Fed released the minutes from its last meeting, as traders digested the contents. The FOMC members seem to be in agreement that a rate hike at the June 13-14 meeting is still on the table. The CME group gave the odds of an interest rate hike at that meeting an 83% chance of being implemented. Last week, that same group had the odds at 65%. Maybe Trump should spend more time overseas and and less time on Twitter.
Unwinding the Federal Reserve’s $4.5 trillion balance sheet
Perhaps the big news from the Fed was a few details about unwinding its $4.5 trillion portfolio, made up of mostly US government debt. The committee again seems in agreement, however, and it appears to be in no rush to start unwinding. This gave traders and investors a sense of relief. In the past, the markets would treat any talk of unwinding very negatively. With that news, the greenback ended lower, and the ten-year Treasury eased 3 basis points to 2.25%
The latest Investor Intelligence survey of newsletter writers showed a big drop in bullish sentiment from 58.1% to 51.9%. On the other side, bears rose to 18.3% from 17.1%, a week ago. Those who expect a near-term correction rose to 29.8% from 24.8 %.
I don’t expect to see much action today. Tomorrow, being the Friday before a rare three-day weekend for traders (Memorial Day), most traders will make it a four-day weekend and start leaving early today to beat the traffic out of the city. Friday, most trading desks will be run by the second stringers who can’t really place any big bets on taking on new positions. Accordingly, we might be seeing some early “paint the tape” trades going on, as money on the sidelines scrambles to get in.
Wishing everyone a safe & happy holiday!