Choppy session yesterday with Dow up +0.47%, but SP500 and NASDAQ slightly negative. With fears of protectionism persisting and the Fed meeting approaching, the markets could stay in a “wait and see” phase at least until the meeting.
However, considering the moderate increase in wages and inflation in February, the risk around the FOMC meeting is largely reduced. The main focus seems to have shifted to the risk of a trade war, which is much less predictable. With the current president being highly mediatized, and at such high valuations, equity markets tend react quickly. Hence, short-term volatility spikes could become the new norm. On the other hand, we are far from the panic selling of February. Trump’s bark has had a tendency to be worse than his bite, and for now, that is what the markets seems to believe. In addition, the strong synchronized growth, tempered inflation, and solid corporate results remains the dominant theme.
The Put/Call ratio has started to turn up from pessimistic levels, which may provide the strength for another leg higher. Technically, on the SP500, the 2800 level is the last hurdle before we probably see that happen. Short-term a break below 2740 could lead to further consolidation towards 2690, and potentially 2650. Below 2650, there are chances we see the February lows again.