Can Yellen’s dovish Fed policy offset a political crisis in Washington?

Investors and analysts alike are in for an eventful next few days as the markets will balance political turmoil in Washington with Fed Chairwoman Janet Yellen’s Congressional testimony. Recently released emails around Donald Trump Jr.’s 2016 meeting with a Russian government lawyer to discuss ‘incriminating’ documents about Hillary Clinton will likely rattle the administration’s policy agenda. Tuesday trading saw a sliding U.S dollar as well as a slight dent in stocks. The slip in the greenback continued into Wednesday, but had been aided by Yellen’s market-friendly policy statements to Congress today.

Although the story has seemed to meet smoke with fire, markets have yet to react strongly. Market participants will now need to balance this against a more positive, market-friendly matter in the form of Fed Chairwoman Janet Yellen’s ongoing Congressional policy testimony. Prepared statements from today’s hearing painted a more scaled-back, dovish picture from the Fed regarding future interest rate hikes and economic performance. Equities have been boosted today, as well as bonds. This sent yields downward and flattened the curve; the 10-year Treasury note yield, for example, fell 4 basis points to 2.32%. Banks are turning downward, however, and we will likely see sector rotation and a range-bound market until earnings season next week.

The DJIA is currently up 0.56% at 21,530, led by Caterpillar Inc (CAT), 3M Company (MMM) and Intel Corp. (INTC). The S&P 500 saw almost all sectors making gains, led by utilities and energy. The index is currently trading at 2,441 which is up 0.64% from the open. The Nasdaq-100 is up 0.87% at 6,247.

Using the ^GSPC symbol to analyze the S&P 500, our 10-day prediction window shows  overall negative signals. Today’s negative vector figure of -0.04% moves to -0.19 within three trading sessions. Today’s predicted support and resistance is 2,409.82 (± 3.61) and 2,429.96 (± 3.64), respectively. The predicted close today is 2,426.23. Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.   

Oil

Crude oil prices are reflecting continuing uncertainty around domestic U.S production, although recent weekly data points to a decrease in supplies. According to the U.S. Energy Information Administration, the week of July 7 saw a supply drop of 7.6 million barrels. Although crude supplies dropped below 500 million barrels for the first time since January, rising production offset that news. West Texas Intermediate for August delivery is currently priced at $45.79 per barrel, up 1.60% from the open.  

Looking at USO, a crude oil tracker, our 10-day prediction model shows strong upward movement. The fund is currently trading at $9.35, which is up 0.86% from the open. Today’s prediction sees support at $9.18 (± 0.06) and resistance at $9.45 (± 0.06). The predicted close for today is $9.40. Vector figures show +1.46% for today, moving to +2.20 in three sessions. Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.   

Gold

The price for August gold is currently up 0.46% at $1,219.20 a troy ounce. The yellow metal is seeing rising support due to political upheaval in the Trump administration. When the White House incurs political damages, particularly around the Russian election meddling controversy, uncertainty grows around the feasibility of passing an infrastructure spending, tax cuts and deregulation. A drawback in Fed thinking around interest rate hikes has also provided some interest in the non-yield bearing asset.  

Using SPDR GOLD TRUST (GLD) as a tracker in our Stock Forecast Tool, the 10-day prediction window shows incrementally building negative signals. The gold proxy is currently trading at $116.04, up 0.37% from the open. Today’s predicted low is $114.25 (± 0.24) and the predicted high is $115.62 (± 0.24). The predicted close today is $115.02. Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.   

Treasuries

Treasury yields are sliding as bond prices rally, following Fed Chairwoman Janet Yellen’s initial policy testimony to Congress. A dovish outlook with ‘gradual’ interest rate hikes, and a pivot to the Fed balance sheet from Fed funds to normalize monetary policy is validating market sentiments.  The yield on the 10-year Treasury note is currently down 1.70% at 2.33%. Bond prices and yields are typically inversely related to one another.

Using the iShares 20+ Year Treasury Bond ETF (TLT) as a proxy for bond prices in our Stock Forecast Tool, we see incrementally building negative signals in our 10-day prediction window. Today’s vector figures move from -0.31% to -1.33% in three trading sessions.  The ETF is currently priced at $123.73- up 0.50% from the open. The predicted close today is $122.28 with a low and high of $122.00 (± 0.25) and $123.11 (± 0.25), respectively.  Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.

Volatility

The CBOE Volatility Index (VIX) is currently down 4.68% at 10.38, and our 10-day prediction window shows positive signals followed by negative corrections. The predicted close today is 10.58 with a positive vector of +0.41%. Today’s predicted lows and highs are 10.17 (± 0.21) and 11.20 (± 0.23), respectively. Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.