Will Fed Derail The Good Times?

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Posted: Jun 13, 2018 11:51 AM
Will Fed Derail The Good Times?

It was another subdued session for the market on Tuesday, which seemed to be distracted by what will happen with the Federal Reserve today and the European Central Bank (ECB) on Thursday. However, it’s clear that investors, eager for action, are sifting through the ashes of names that recently disappointed.

Dollar Tree (DLTR) led consumer discretionary names while Molson Coors Brewing (TAP) enjoyed the biggest gains among staples. 

While the market meanders, the good news just keeps coming.

Small Business Optimism:  Second Best Report Ever

NFIB President and CEO Juanita Duggan state that, “Main Street optimism is on a stratospheric trajectory thanks to recent tax cuts and regulatory changes. For years, owners have continuously signaled that when taxes and regulations ease, earnings and employee compensation increase.”

The May report hit several records:

• Compensation increases hit a 45-year high at a record net 35 percent

• Positive earnings trends reached a survey high at a net three percent

• Positive sales trends are at the highest level since 1995

• Expansion plans are the most robust in survey history

Component

Current Level

Change M/M

Plans to increase employment

18%

2

Plans to make capital outlays

30%

1

Expect economy to improve

37%

7

Expect real sales higher

31%

10

Now a good time to expand

34%

7

 

Home Sweet Home

On top of this, home equity soared to near-record levels, according to CoreLogic.

  • $1.4 trillion 1Q 2018 from a year earlier
  • $15.0 trillion total
  • $10.0 trillion mortgages

The Fed Steps to Plate

Meanwhile, the Street is bracing for a 25-basis point hike in Fed funds after the Federal Open Market Committee (FOMC) wraps up today. The question remains: will the fed signal a pedestrian approach from here or will misleading headlines like ‘Consumer Inflation Rising at Fastest Pace in 6 Years’ alter their plans not to derail the economy and stock market?

Right now, the Street seems fine with three more rate hikes this year.

Federal Reserve Rate Hike 2018

25 Basis Point Increase

June 13

96%

August 1

2%

September 26

73%

November 8

7%

December 19

43%

 

Summary

I like that the market is consolidating recent gains without yielding much ground, as the next major rally means the Dow Jones Industrial Average should retest its all-time high point. That would be the kind of move that lures a lot of cash off the sidelines.

Today’s Session

Equites are pointing to a slightly higher open ahead of the conclusion of the FOMC gathering.   Interestingly, even a “hot” Producer Price Index report, driven by a surge in energy, hasn’t stopped the upside pressure.  However, there is obvious caution in the air.