Weak Empire Fed Report - Yet Stocks Still Rally Yesterday

Weak Empire Fed Report - Stocks Slightly Increase On Monday

Despite the Weak Empire Fed Report, stocks still rallied. On Monday, the S&P 500 increased slightly, while the Nasdaq and Russell 2000 increased significantly.

Investors usually get nervous when the market prices in a positive outcome for an uncertain news event. An example of this is a stock rallying sharply before an earnings report where there’s a good chance a negative reading comes out.

For an expensive high flying stock, a very slight revenue miss can be enough to send it down double digits because the whisper number was higher than the consensus.

In this case, the market has rallied to within 2% of its record high before the Fed meeting. If the Fed doesn’t guide for any rate cuts this year, the market will likely sell off. I don’t think that’s likely, but it’s possible.

It’s also interesting to see stocks rise with the terrible Empire Fed index which I’ll review later in this article.

Details Of Monday’s Action

S&P 500 increased 9 basis points, Nasdaq increased 0.62%, and Russell 2000 increased 0.67%.

Monday was another example of the VIX moving in tune with the market as it was up 0.46% to 15.35. CNN fear and greed index actually fell 1 point to 37, which is fear, even though stocks rallied.

Best sectors on the day were communication services and real estate which increased 1.06% and 1.12%. Worst sectors were the materials and the financials which fell 0.94% and 0.93%. Maybe the financials fell because the Fed is expected to forecast cuts on Wednesday.

10 Year Yield’s Trade Deal Projection

The 10-year yield is at 2.09% and the 2-year yield is at 1.87%. Most of the yield curve is normal. Except for the kink in the near term part of the curve which is caused by expected rate cuts.

The chart below shows the odds of a trade deal based on the 10-year yield. To be clear, this is only an estimate. I don’t think it’s perfectly accurate. But I like the idea of looking at the 10-year yield to determine if the market thinks there will be a trade deal.

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