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THE GIST (“THE WHAT”)
The S&P 500 index extended its Fed-led rally for the third straight session after the central bank dropped the word ‘patience’ in its statement and raised the odd of rate cuts this year, barring any improvement in the economic data. Defensive stocks outperformed alongside sliding Treasury yields to lift the index closer to April 30, 2019 record close.
Making slight moves ahead of the FOMC decision, the index gained a leg higher after the Fed solidified market expectations of a rate cut. But whipsawing thereafter alongside a cautious Fed Chairman Jerome Powell, the index managed to close near session highs and at a striking distance away from all-time highs at 2926.46, up 8.71 points and gaining 0.30% over previous session’s close.
THE DETAILS (The “How & Why”):
The Federal Reserve left the benchmark interest rates unchanged, while dropping the word ‘patience’ from its statement and signaled at rate cut as early as July to support the current economic expansion, if warranted by weakening economic data. While the central remained optimistic about the current economic outlook, it lowered its inflation forecast to 1.5% from 1.8% in the wake of receding inflationary pressures.
A dovish confirmation sparked a slide in Treasury yields and weakened the U.S. Dollar. The 10-year yield fell to its September lows at 2.023%. Defensive sectors outperformed alongside falling yields. Health Care and Real Estate sectors led the day’s advances, gaining 0.96% and 0.68%, respectively. Utilities and Consumer Staples also posted modest gains of 0.81% and 0.41%.
Technology stocks extended their gains, led higher by a 5.21% jump in Adobe Inc. after the software specialist beat second quarter earnings expectations. Allergan PLC was the top gainer of the session, soaring 6.23% after the drug maker announced that its constipation drug showed significant improvement in patients struggling with irritable bowel syndrome.
On the flip side, previous session’s strongest performers were today’s laggards. Materials, Financials and Energy all shed last session gains, closing lower by 0.47%, 0.21% and 0.22%. SVB Financial Group, Albemarle Corp. and Charles Schwab Corp. were the worst decliners of the session, falling 3.20%, 2.59% and 2.49%, respectively.