The FedEx news has caused many analysts to worry about the transportation sector and the potential ripple effects this could have on the rest of the market. As we have written before, transportation sector is seen as a barometer of economic activity. The Fed hikes and FedEx lowered profit revisions point to continued economic weakness and softening of the global economy.
After the announcement, the market’s volatility became a bit muddied, as far as the more lasting reaction; initially down, then up, then down, then closing lower. Was .75 basis points enough to squash inflation and give the securities’ market some, well, security?
Today’s 75 basis point hike and guidance to raise a further 100 basis points come at a time when IYT Transports (transportation), the forerunner of economic activity, is signaling and fighting to reclaim strength. By the end of the day, IYT broke the very significant 200-week moving average. Our risk indicators are now 100% negative.
So, what did the Fed accomplish? Demand destruction? End of inflation? A new flight to safety?
- Demand destruction: Clearly, IYT says yes. But will that curb inflation in a time of geopolitical stress?
- End of inflation: Yes in housing, used cars, consumer discretionary and oil prices for now. Yet, food and an energy crisis may not solve the long-term problem. Not to mention geopolitics.
- A new flight to safety: In the article I wrote for CMC Markets (link under media), we hoped for a 1.00 raise, so the market would think that was it for the year. Instead, we may have seen a new safety play-20+ year long bonds TLT.
After months of a trading range in the overall indices, it is possible we see a reversal back up on Thursday. However, it is probably more likely, though, that, as we break the lows of that range, we see a new leg lower. We can then reassess risk.
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Mish discusses how the Fed needed to be more aggressive, as they now have more to raise this year, with a panel on Coindesk.
See Mish’s latest article for CMC Markets, titled “Our Go-To Trade Indicator Post-Fed Meeting“.
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- S&P 500 (SPY): 380, a big area of support, broke; now must clear back or 372 next.
- Russell 2000 (IWM): 177 broke; if does not recapture, 167 next.
- Dow (DIA): 301 teetering support.
- Nasdaq (QQQ): 276-275 next support if cannot get back over 286.
- KRE (Regional Banks): Broke with the market; 60 support, 63.50 resistance.
- SMH (Semiconductors): 200 marginally holding. Needs to hold or sees 190.
- IYT (Transportation): 213 also teetering support, so will see what it does from here.
- XRT (Retail): The consumer is definitely in the line of fire; 62.15, if clears, is a relief. Under 60.00, not so much.
Director of Trading Research and Education