S&P 500; US Indexes Fundamental Daily Forecast – Trading Flat Ahead of Fed Minutes

U.S. equity markets are trading flat shortly ahead of the cash market opening. On Monday, the markets closed mixed with the Dow Jones Industrial Average and the S&P 500 Index closing higher and the NASDAQ Composite lower.

The Dow and the S&P 500 were helped by strong rallies in the energy and financial services sectors. The NASDAQ was punished by another drop in technology stocks. The price action the first day of the new quarter suggests a sector shift from technology into banking stocks. This rotation began in early June.

Technology stocks are going down because investors feel they are overvalued. Investors like banking stocks because the hawkish Fed is raising interest rates and this will increase their profitability. Energy stocks gained ground because of an eight day rally in crude oil prices.

Traders are worried about volume today, coming off of Tuesday’s U.S. Independence Day bank holiday. Additionally, later today at 1800 GMT, the Fed will release its latest monetary policy meeting minutes. Traders have widely accepted the Fed will be hawkish towards interest rates. However, there is still some uncertainty over the details of its plan to trim its balance sheet.

Traders are interested how the Fed will deal with its balance sheet. Investors want to know if the central bank will be aggressive, or if it will reduce its debt gradually. Moving too fast will likely be bearish for stocks because it will be a form of aggressive monetary policy tightening.

Also on the minds of traders is the situation with North Korea. The rogue nation launched a missile over the weekend. This may trigger a response from South Korea or the U.S. Any military action will be bearish for stocks.

In Asia, the major stock indexes finished higher as investors shrugged off geopolitical concerns over North Korea. European markets were mixed on Wednesday.

The trend is up as well as momentum so we have to expect the markets to pick up from where they left off on Monday. However, all bullish bets will be off if volume comes in well-below average. Investors may stay on the sidelines because of the Fed minutes and Friday’s U.S. Non-Farm Payrolls report.