Traders were encouraged by the positive GDP, Chicago PMI, and jobs numbers this morning and the markets traded higher. But then Fed concerns took over and the market pulled back in anticipation of the announcement at 2:00 ET. Immediately after the announcement, the markets gyrated lower and then higher, but gave up much of those gains before the close. Markets ended the day unchanged with SPX closing at $1686. RUT also gained with a close at $1045, up $2. Volatility remains largely unchanged at 13.5%.
Trading volume increased with 2.6 billion shares of the S&P 500 stocks trading today. Trading volume increased 18% on the NYSE and increased 9% on NASDAQ.
The Chicago PMI came in at 52.3 in July, up from 51.6 in June. This was slightly better than analysts expected. ADP issued their private jobs number at 200 thousand jobs created in July; traders were encouraged that this positive number may be indicative of a good jobs report Friday. GDP for the second quarter came in at an annualized gain of +1.7%. This was up from the first quarter and beat analyst expectations.
The FOMC announcement was largely unchanged from the previous announcement with a couple of key changes. Perhaps most significantly, there was no discussion of ending the quantitative easing programs; anyone who was expecting a timetable is disappointed. The committee also changed their assessment of the economic recovery to a slightly more pessimistic posture with language of a "moderate recovery" changed to a "modest recovery". The FOMC is also starting to see some early signs of growing inflation but doesn't see that as an imminent threat (yet). Increasing inflation is probably the largest risk to the Fed's stimulus programs.
The Chicago PMI came in at 52.3 in July, up from 51.6 in June. This was slightly better than analysts expected. ADP issued their private jobs number at 200 thousand jobs created in July; traders were encouraged that this positive number may be indicative of a good jobs report Friday. GDP for the second quarter came in at an annualized gain of +1.7%. This was up from the first quarter and beat analyst expectations.
The FOMC announcement was largely unchanged from the previous announcement with a couple of key changes. Perhaps most significantly, there was no discussion of ending the quantitative easing programs; anyone who was expecting a timetable is disappointed. The committee also changed their assessment of the economic recovery to a slightly more pessimistic posture with language of a "moderate recovery" changed to a "modest recovery". The FOMC is also starting to see some early signs of growing inflation but doesn't see that as an imminent threat (yet). Increasing inflation is probably the largest risk to the Fed's stimulus programs.
As I watched the markets gyrate after the announcement, it appears that the experts are having as much difficulty as any of us trying to determine the appropriate price of this market absent the Fed's influence. I think we may be in for an extended period of intense Fed watching and parsing of every word in their announcements.
My Aug position on RUT stands at a P/L of -$3420 with delta = -$80 and theta = +$219. Tomorrow brings the unemployment claims and the ISM Index; then we get the jobs report Friday. It is very hard to predict market reaction to these numbers; it could go either way. Strong job growth may increase talk of Fed tapering and lead to profit taking. So good news could be bad news. Perhaps a modest jobs number will cause the market to resume its bullish trend, but who knows?
