FOMC – Every Word Matters

May 2, 2023
Author: Peter Stolcers, Founder of OneOption

There is a key sentence that institutions will be watching.

PRE-OPEN MARKET COMMENTS TUESDAY – The market is in a holding pattern just below major horizontal resistance while traders wait for the FOMC statement Wednesday. Earnings season peaked last week and the results have been better than expected. Valuations are elevated and the breath of this rally has been narrow with a handful of mega cap tech stocks accounting for all of the S&P 500 year to date gains.

The official manufacturing PMIs out of the EU (45.8) were weaker than expected and inflation was hotter than expected (.7%). Those markets are trading slightly lower after the holiday.

China’s Q1 GDP came in at 4.5% and that is better than expected. Inflation numbers were slightly below expectations and there are rumors that China might consider easing. Asian markets were slightly higher, but mainland China and Japan are closed today.

In general, the overnight news is market neutral and this should be another dull trading day. After the open we will get the JOLTS job openings number (9.7M expected). ADP will be posted tomorrow along with ISM services.

The consensus for the FOMC statement tomorrow is a 25 basis point rate hike and a pause. The Fed has stated that rates will stay “higher for longer”, inflation is still elevated, they don’t know if a soft landing is still likely and not to expect any rate cuts this year. The key phrase in the statement is “anticipates that some additional policy firming may be appropriate”. Bulls want that removed completely.

The debt ceiling is approaching and Congress only has 8 days remaining this month where both the House and Senate are in session. I’ve been through so many of these. Both sides will leverage the moment and they will play “chicken” to see who flinches. If we get too close to the deadline, the market will drop and they will raise the debt ceiling at the 12th hour.

The market has floated higher on light volume the last 6 weeks. That means that long-term money is still not aggressively buying and that the move is vulnerable to profit taking. If by chance the Fed pauses indefinitely, that would attract longer term money. We are also likely to see money flow into bonds. I am not expecting this scenario because of how hawkish the Fed has been. Even with the bank failures they have remained steadfast. They might also include some comments about the dangerous game being played with the debt ceiling.

Day traders should expect a repeat of yesterday. Light volume moves in both directions are likely. If the market makes a directional move and it stalls, look for a reversal. Try to find a few stocks that are moving on heavy volume and hanker down. Earnings plays are likely to make sustained moves and I would focus there.

Support is at $411 and resistance is at $417.

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