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THE GIST (“THE WHAT”)
Muted price action ahead of the Fed policy statement received a modest lift from Powell’s relatively dovish speech. The S&P 500 index logged a yet another record high daily close at 3046.77, up 9.88 points and gaining 0.33% over previous session’s close. Defensive stocks outperformed alongside sliding yields which were offset by major weakness in Energy stocks.
THE DETAILS (The “How & Why”):
Whipsawing within a tight range for most part of the early session, the index made a slight bearish move following the highly expected quarter basis point rate cut announcement that missed a key clause of ‘act as appropriate’ term, suggesting an end to the mid-cycle adjustment. Reaffirmation by Fed Chair Jerome Powell that the Fed is committed to support the current economic expansion outweighed the conclusion of mid-cycle adjustment.
While acknowledging the receding risks of trade uncertainty and a resilient U.S. consumer economy, Powell cited that the slowing global economy and muted inflationary trend warranted a third rate cut. Treasury yields edged lower after he added that the Fed does not see the need to increase its benchmark interest rate in the absence of an inflation threat.
Defensive sectors outperformed alongside sliding yields. Utilities logged the biggest percentage gain of 0.86%. Health Care sector was the next best performer, receiving a boost from a 2.87% jump in Johnson & Johnson amid reports that 15 new tests run on its baby powder found no trace of asbestos which the FDA had claimed early this month.
On the earnings front, General Electric Co. was the top gainer of the session, surging 11.47% on reporting an unexpected increase in earnings while raising its guidance for free cash flow, a key metric used to gauge efficiency, despite negative impact from grounding of Boeing’s 737 Max fleet, which the struggling industrial conglomerate helps make engines for.
Semiconductor stocks traded higher across the board, providing a modest lift to the Technology space. Meanwhile, Apple Inc. and Facebook Inc. traded slightly lower ahead of their earnings release. Both these tech giants jumped in after-hours trading on solid quarterly results. Apple Inc. beat earnings estimates despite cooling iPhone demand and Facebook Inc. jumped 5% after reporting a 29% rise in revenue, despite growing regulatory concerns.
Bucking the Fed-led rally, Energy were the biggest drag on the index, closing sharply lower by 2.12% as oil prices fell to a one-week low after an EIA report indicated a larger-than-expected increase in domestic crude supply by 5.7 million barrels last week. Devon Energy Corp, Halliburton Co, National Oilwell Varco Inc. and Noble Energy Inc. all fell more than 4% apiece.