20 Mar 2013 AMC

20 Mar 2013

Market Summary 

Market Internals

Leaders and Laggards

Technical Updates

Briefing's Commentaries 

Stock Market Update 16:15 ET Dow +55.91 at 14511.73, Nasdaq +25.09 at 3254.18, S&P +10.37 at 1558.71 : [BRIEFING.COM] The S&P 500 settled higher by 0.7% after spending the entire session in positive territory.  Equities opened firmly higher amid continued speculation over the future of Cyprus as well as the impact of the parliamentary decision to reject eurozone bailout conditions.  Quiet trade continued into the afternoon as the S&P 500 spent the bulk of the day in a three point range. The benchmark index then climbed to fresh highs before sliding back into the day's range.  The afternoon spike occurred after the Federal Open Market Committee announced its decision to maintain the Fed Funds rate at 0.25% and continue its asset purchase program.  Today's statement from the Federal Reserve was largely in-line with expectations. Regarding economic conditions, the Committee observed a return to "Moderate economic growth following a pause late last year."  The Committee did not show increased concern for inflation levels, and said "Inflation has been running somewhat below the Committee's longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable."  Coinciding with the move to fresh highs was a report out of Nikkei News, which suggested the incoming Bank of Japan Governor Haruhiko Kuroda will call for "bold easing." Although the central bank's dovish stance has been widely-known, this report comes as Mr. Kuroda is expected to formally assume his new role on Thursday. The reports were met with yen weakness as the USD/JPY pair jumped to session highs near 96.00.  Although stocks maintained firm gains throughout the day, sector leadership was mixed. Growth-oriented consumer discretionary shares paced the advance, but defensively-minded consumer staples and health care rounded out the top of the leaderboard.  Discretionary shares outperformed amid strength in homebuilders. Lennar (LEN 43.43, +2.01) and Toll Brothers (TOL 36.55, +2.04) both gained over 4.5% while the broaderSPDR S&P Homebuilders ETF (XHB 30.52, +0.72) settled higher by 2.4%.  Elsewhere, the technology space received some support from chipmakers and software companies. The PHLX Semiconductor Index gained 1.2% while software stocks benefitted from the relative strength of Adobe Systems (ADBE 42.46, +1.71). The software publisher gained 4.2% after beating on earnings and revenue. However, the company's second quarter earnings and revenue guidance was on the low end of expectations. In addition, Adobe said its Chief Technology Officer Kevin Lynch is leaving the company to join Apple (AAPL 452.08, -2.41), which shed 0.5%.  On the downside, the industrial sector lagged amid weakness in major sector components. Industrial equipment manufacturers underperformed in the wake of a disappointing global sales report from Caterpillar (CAT 86.94, -1.33) as well as a Wells Fargo downgrade of Deere (DE 87.74, -2.83).  Industrial component FedEx (FDX 99.13, -7.33) endured a rough session and fell 6.9% after missing on the bottom line. The company also guided fourth quarter earnings below consensus due to a slowdown in global revenues. Peer United Parcel Service (UPS 84.03, -1.05) lost 1.2% in sympathy, and the Dow Jones Transportation Average shed 0.4%. Note that both FedEx and UPS are part of the bellwether complex.  Trading volume was below average and largely in-line with Monday's total as 673 million shares changed hands on the floor of the New York Stock Exchange.  Taking a look at the final sector placement, consumer discretionary (+1.2%), consumer staples (+1.0%), and health care (+0.9%) sectors led the broader market while telecom (-0.1%), industrial (+0.1%), and energy (+0.6%) stocks brought up the rear.  Today's economic data was limited to weekly MBA Mortgage Applications, which declined 7.1% to follow last week's decrease of 4.7%.  In tomorrow's economic news, weekly initial and continuing claims will be reported at 8:30 ET. January FHFA Housing Price Index will be announced at 9:00 ET while February existing home sales, leading indicators, and March Philadelphia Fed Survey will all be released at 10:00 ET. ..NYSE Adv/Dec 2263/755. ..NASDAQ Adv/Dec 1731/722.

FOMC Press Release

Information received since the Federal Open Market Committee met in January suggests a return to moderate economic growth following a pause late last year.  Labor market conditions have shown signs of improvement in recent months but the unemployment rate remains elevated.  Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy has become somewhat more restrictive.  Inflation has been running somewhat below the Committee's longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices.  Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.  The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate.  The Committee continues to see downside risks to the economic outlook.  The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.  The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.  Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

The Committee will closely monitor incoming information on economic and financial developments in coming months.  The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability.  In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives.

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens.  In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.  In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.  When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Charles L. Evans; Jerome H. Powell; Sarah Bloom Raskin; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen.  Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.

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Jason's Commentaries


Market was up last night by 50 points. The market like the fact that the depository tax was being rejected, and further enhanced by the fact that the FOMC is not intending to stop QE anytime soon.  


Before we start on the DMA, I would like to point towards the situation in Cyprus. Cyprus is long considered to be a money laundering location by the Russians due to it's dubious banking regulations. Now that the debt crisis hit, there are more political implication that it seems. ECB is proposing to loan $10b to Cyprus on the terms to raise another $5 Billion Euros by taxing its depositors. ECB has a few motivation to do that. Firstly, they wanted to test this strategy out on Cyprus. Cyprus has a very small population, hence even if the strategy go wrong, it's minimal impact. Secondly, they are targeting the Russians' money. On these speculations, Cyprus is unlikely to take up the ECB's offer as they will definitely offend their biggest client, the Russians, and they will be going to a debt of $10b Euros. There are some writers saying that the Cyprus situation will be the Lehman Moments. This looks very similar to the Lehman Brother's Crash during the Financial Crisis. All the Treasury could have done then, is to loan a few billion dollars to Lehman to keep them afloat. That might have prevented such a chain reaction from happening. It's much cheaper to let the whole financial system going down together with Lehman Brothers. Now, we have Cyprus, small, but big serious implications. Either way, it's not a good thing. Now that Cyprus is looking to have some Natural Gas deals with the Russians to see if they are able to come up with the cash to tide over this crisis. We gotta keep a close watch on the situation and see how the market reacts over this issue. 

Now back to the DMA, the Consumer Discretionary was the biggest gainers of the day, having more than 1% of gain.  The homebuilders made a good run last night, being sparked by Lennar's excellent earnings, dragging up other Homebuilders like Toll Brother's, Ryland etc.  Volumes were around 670 million shares traded, as market was thinly traded before the FOMC release. Hence I would say the volumes were healthy. On top of that, the bulls definitely outpaced the bears significantly. It seems that the Dow definitely reacted to the 14450 support level which likely to cause the bounce last night as well. While the Treasuries on a rally for the past 2 days, it seems that the Treasuries found a resistance and I'll be expecting some lackluster movement from Treasuries soon. We'll be having a few major reports like the Philly Fed, Unemployment Claims and Existing Home Sales coming up. Gonna have a wild ride again tonight.   

Market Call: Flat to upside

Date: 20 Mar 2013