Markets Watch Fed Chairman Jerome Powell's First Congressional Testimony

Tuesday, February 27, 2018, 11:30 AM, EST

NASDAQ Composite -0.45% Dow -0.01% S&P 500 -0.18% Russell 2000 -0.33% S&P MID 400 -0.33%
NASDAQ Advancers: 874 Decliners: 1290
Today's Nasdaq Volume (100 day avg.) +6%

Jerome Powell's first congressional testimony sounds very similar to the Janet Yellen's statements, as the Fed will move forward at a gradual rate as the economic conditions in the US warrant. US equites opened the session slightly lower, coming off another day of 1+% gains for the S&P 500. During the relief rally, the S&P 500 has posted daily gains of greater than 1% in 6 out of the past 11 sessions, while the down days saw declines of half that. Sector performance today is essentially split down the middle with six sectors trading higher and five lower. Treasury yields are inching higher after three consecutive days of declines.

Fed Chairman Jerome Powell is testifying to house during the Fed's semiannual monetary address, following a statement that was released before the US markets opened. The leading takeaways thus far have been: the recent market volatility will not weigh in the committee's economic outlook, any sustained deviations from the Fed's 2% inflation would be a concerning factor, and the smooth "leadership transition" from Janet Yellen.
In other economic news this morning, US Trade Balance in January fell to ~$74.4b, which is lowest/widest level since July 2008, a data point that might not be applauded by the Trump administration. Also falling short of expectations were monthly Durable Goods Orders (actual -3.7% vs -2.0%), as an expected decline in Airplane orders impacted the headline figure. Business Investment also declined by 0.2%. Some of the weak data is attributed to the severe cold temperatures earlier this year, and next month's read should be back on pace. The report also detailed last month's Wholesale Inventories which advanced by 0.7%, and up 4.5% over the past year.
Per StreetAccount, CNBC reported that while retail investors were selling at a frenetic pace in early February, corporations stepped in with $113.4B in buybacks this month, the highest since April 2015, based on data from TrimTabs. While investors withdrew $50.9B from funds that focus on US stocks, buybacks totaled $5.8B a day during the current earnings season, a record. This is seen as a sign companies will be reliable purchasers of stock during periods of volatility in the year ahead.
On the M&A front, Comcast surprised investors this morning after it announced a proposal to acquire UK-based Sky Plc for ~$31 billon, which is an attractive piece of 21 ^st Century Fox. Recall that Walt Disney is attempting to buy all of 21 ^st Century Fox, so may be forced to adjust their original proposal.

Technical take: Its Hammer Time for Utilities

With interest rates rising sharply for the better part of the last five months, the high yielding utilities sector has been grossly underperforming the broader market. The SPDR utilities ETF (ticker XLU) is one plus sessions away from logging its third consecutive month in the red over which time it declined more than 17% from its November high. February started off particularly weak with the XLU down more than 7% over the first four sessions, however since then it has clawed back more than 6% and is near flat for the month. The month's price action has formed a bullish hammer candlestick pattern signaling a low is in and utilities are ready to resume its multi-year uptrend. Of particular importance is the location of this reversal pattern which is carved out along a cluster of technical support represented by the rising trendline originating all the way back to the 2009 lows, as well as the horizontal support at $49.78 representing a major pivot high from January 2015. With rising interest rates likely due for a breather, and the broader market seeing an uptick in volatility, the defensive utilities sector may now be on the receiving end of sector rotation.

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