S&P 500; US Indexes Fundamental Daily Forecast – Bank, Oil Stocks Could Be a Drag on S&P

The major U.S. stock indexes closed mixed on Wednesday after the release of the Fed’s interest rate and monetary policy decisions. Traders also reacted to the news that Congressional leaders had reached a tentative agreement on a tax overhaul plan.

The Dow posted a record intraday high and record close, led by solid gains in Caterpillar. The S&P 500 Index closed lower, driven by financials which posted their worst session since November 7, falling 1.3 percent. Earlier in the session, it hit a new all-time high.

In the cash market, the benchmark S&P 500 Index settled at 2662.85, down 1.26 or -0.05%, the blue chip Dow Jones Industrial Average finished at 24585.43, up 80.63 or +0.33% and the tech-based NASDAQ Composite closed at 6877.95, up 15.63 or +0.23%.

The Fed raised interest rates by a quarter point on Wednesday. The widely expected move increased the central bank’s target range to between 1.25 percent and 1.5 percent. It also raised its GDP forecast from 2.1 percent to 2.5 percent. Its inflation forecast was raised from 1.6 percent to 1.7 percent.

In other news, Asian markets closed slightly lower in their first session following the Federal Reserve’s interest rate and monetary policy decisions.

In Europe, stocks were also slightly lower on Thursday morning, following the lead in Asia. Many traders are on the sidelines ahead of today’s European Central Bank (ECB) and Bank of England (BOE) monetary policy decisions.

Forecast

U.S. stocks are trading a little higher in the pre-market futures trade, well-ahead of the cash market opening. Yesterday’s price action in the markets was probably fueled by the cautiousness in the Fed’s monetary policy statement which some investors perceive to be a “dovish” message.

Stock market investors like low rates so when the Fed issued a word of caution over low inflation, which is expected to remain below the Fed’s target for another year, they bought on Wednesday.

With policymakers having little reason to accelerate the pace of rate increases, they settled on three rate hikes in 2018. Quite a few investors felt the need for four rate hikes. This news is bullish for the broad stock market, but bearish for bank stocks. Also bullish for the market is the news that Congress moved closer to implementing its version of tax reform.

I think the overall tone will remain firm, but we’re going to continue to see a rotation amongst the major indexes. While all will be supported by the notion of lower rates and tax reform, some are going to be hurt by falling bank stocks and weaker oil prices.