Market Overview

CPI Report Relatively Tame; Markets Lose Steam Early On After Tillerson News


Hold on — today could be a rocky ride. The markets jumped in the early going as investors appeared to breathe a sigh of relief after a key inflation report was released. But they appeared to lose some steam after President Trump confirmed in a tweet that Secretary of State Rex Tillerson was out and CIA Director Mike Pompeo was in.

Given some other outside factors, like the onset of the NCAA’s championship competition and the snowstorms that are again hitting the East Coast, volume could be light and trading could be jumpy. Lighter volumes tend to lead to higher volatility, so be careful in making big moves.

The Consumer Price Index (CPI), minus the volatile food and energy prices, came in at a 0.2% gain and in line with Wall Street expectations. January’s 0.5% increase was widely blamed as one factor in the markets’ pullback then.

The CPI is an important economic metric that the Federal Reserve uses as it decides the pace of interest-rate hikes. Higher numbers could indicate higher inflation, which, in turn, might prompt the Fed to raise rates more aggressively.

Ahead of the CPI release, the CME FedWatch tool stood at nearly an 89% probability that a quarter-point basis rate could be on the table during next week’s two-day meeting. It fell to about 86% after the announcement. However, next week’s potential action has been bandied about for many weeks, apparently buttressed also by public statements made by Fed members. It’s still unclear how quickly the Fed might accelerate rates going forward though the futures market has a near 33% probability pegged by December.

The Dow Jones Industrials ($DJI) was heading about 100 points higher in the early going as the S&P 500 (SPX)  and the Nasdaq Composite (COMP) tacked on smaller gains. 

Shares of Broadcom Ltd (NASDAQ: AVGO) were up about 1% in pre-market trading while QUALCOMM, Inc. (NASDAQ: QCOM) shares were heading about 4% lower after it appeared that the biggest potential technology deal in history was kaput. Late yesterday, President Trump blocked the $117 billion hostile sale of QCOM to Singapore-based AVGO, noting that there was “credible evidence” that led him to believe that AVGO “might take action that threatens to impact the national security of the United States,” according to the presidential order.

On Monday, the industrials sector took a beating — dropping 1.2% —and weighed heavily on the overall stock market. The Dow, which started the session on solidly higher ground, started to lose its footing within the first 20 minutes of trading. It bounced off its intraday lows, ending the session lower by 0.6%. The SPX bobbed in and out of negative territory before finishing flat. The Nasdaq looked to be the outlier, rising right out of the gate to hit an intraday record before settling up 0.36%, its second straight day of fresh closing highs and seventh of gains. 

At least some of yesterday’s mixed bag was blamed on fears of a trade war, which is what probably led to the hit to the industrials, according to some analysts. President Trump’s plan to enact tariffs, with temporary exemptions on Canada and Mexico, appears to be at the heart of many fears about retaliation against certain American products. Yesterday, at least one GOP-sponsored bill was introduced as a means of quashing Trump’s tariff plan, according to published reports.

Elsewhere, crude oil prices fell 1.1% while gold prices also declined modestly.

FIGURE 1 THE OUTLIER. The Nasdaq Composite (in blue) zipped ahead Monday to touch fresh records and mark its seventh straight day of advances. Meanwhile, the Dow (in bars) and the SPX (in purple) couldn’t hold on to Friday’s euphoria, both ending to the downside.  Data source: S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Phase Two Tax Cut?

That’s what President Trump apparently was hinting at on Monday during an event honoring the World Series champion Houston Astros, according to published reports. Those in attendance were Rep. Kevin Brady and Sens. John Cornyn and Ted Cruz, all Texas Republican lawmakers.

“Kevin, are we going for an additional tax cut, I understand?” Trump asked Brady, according to published reports. “Huh? He’s the king of those tax cuts, yeah? We’re going to do a phase two, I’m hearing that. You hear that, John and Ted? Phase two. We’re actually very serious about that, Kevin. So, it’s good.” Stay tuned.

No Big Deal

That’s the word from Boston Federal Reserve President Eric Rosengren on Trump’s steel and aluminum tariffs, according to an interview he had with the Washington Post that was published Monday. The tariffs are “not going to have a big impact” on the economy, Rosengren said, nor does he think they will trigger a global trade war.

Everything is going so well for 2018 that he’s pushing for the Fed to up interest rates maybe more than three times this year, he said. “We're in an environment where we're right at our target if things come out the way I'm expecting in terms of inflation,” he said in the Post interview. “And we're pretty low on the unemployment rate. That is good news.”

The Buffett Madness Bet

Warren Buffett’s upping the ante on his third NCAA championship bracket contest: If a Berkshire Hathaway (NYSE:BRK.B) employee accurately predicts the entire bracket through the NCAA’s top 16 tournament, with first-round games starting Thursday, Buffett said on CNBC that he or she will win $1 million annually for life. Buffett is, well, sweetening the pot with an extra million if his home state team--the Creighton Bluejays--wins the tournament, he said. If no one wins either, there’s a $100,000 prize for the employee whose bracket lasts the longest. Who doesn’t wish they worked for Buffett this month?

What are the odds of winning the grand prize? Pretty slim, or as the NCAA says, “off-the-chart crazy” at 1 in 128 billion on the high end; 1 in 9.2 quintillion on the low end. The WSJ’s Jason Day reminded readers yesterday of this Buffett quote: “Risk comes from not knowing what you’re doing.” Go team.

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.

Posted-In: JJ Kinahan March Madness TD Ameritrade The Ticker TapeNews Commodities Markets Trading Ideas


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