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Thursday, July 5, 2018

Market Alert - Last Hour

Stocks are mostly at session highs post-FOMC on a, as usual, rather volatile ride. Morning futures gains faded toward the bell and kept fading for the first 1.5 hours. When Europe closed stocks moved straight up back to the pre-market highs, paused, then rallied into the FOMC decision.

On a more hawkish FOMC statement stocks sold back from the session highs into 2:00ET. They since rebounded to the pre-FOMC session highs and that is where they sit, rebuffed a bit at that prior level.

SP500 20.00, 0.74%
NASDAQ 71.76, 0.96%
DJ30 152.79, 0.64%
SP400 0.65%
RUTX 0.87%
SOX 2.35%
NASDAQ 100 1.11%

The FOMC minutes showed a more hawkish Fed, putting into its statement the increase from 3 to 4 hikes for 2018, nothing that 'gradual hikes are needed amid a very strong economy.'

The worry was fear of flying, nothing that if the "economy operates beyond its potential" for too long inflation or an economic downturn were possible. Good grief. At 2% the prior quarter and just edging past 4% (according to optimistic estimates) this quarter, the economy is not even at its potential unless you believe the US is now doomed to European sized growth. 'Very strong?' By what standards? Historic US growth levels (at which we are not) or Obama growth levels?

Trade and tariffs are a concern with the Fed stating it is 'watching closely for any impact on business investment.' Okay, that leaves the Fed an out it can use if it feels it has acting rashly or as the Fed always acts.

Yield Curve. This also garnered attention thank goodness, providing another out for the FOMC. "A number of Fed Officials noted it was important to watch the yield curve shape," nothing that it "historically" is a solid indicator whether the US economy heading toward recession. Wow, a turn from Greenspan and his asinine 'conundrum.' He saw a 'strong' economy, he saw a 'runaway consumer,' he hiked rates and watched the yield curve flatten and invert and was stumped. Idiot. At least this Fed acknowledges history versus acting as if it knows more than markets a la the 'maestro.'

In sum, the Fed views the economy as 'very strong.' It sees the yield curve and says it will watch it, but you get the feeling many, as Greenspan, don't really believe it is indicating anything. Wrong dear Fed members. It is worried about the impact of the trade issues. That leaves the Fed talking hawkish with a fourth rate hike for 2018 now in its forecast, but it was smart enough to leave itself two outs. It has them but when it needs to, will it use them?

Growth is leading the bounce though SP500 is not far behind. NASDAQ 100 is out in front of NASDAQ, and SP500 is ahead of SP400 with DJ30 matching the midcaps. That tells you the big names are predominating though RUTX is still stronger than the NYSE large cap indices.

With the upside we will let current positions work if they are continuing to work on a base or are moving upside. Some are not (SOHU, COLL). We are looking at some possible entries, but frankly many stocks are up but this after a Tuesday half-session trouncing, so they are not that many powering higher. FB, despite all the stories piled onto it, looks interesting. VSH as well.
Jon Johnson, Chief Market Strategist

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