The S&P 500 is now up 8.2% since this year’s low on February 11. It certainly looks like yet another relief rally following yet another “endgame” panic-attack correction, which we have been tracking since the start of the current bull market in our S&P 500 and Panic Attacks.
The S&P 500 is now above its 50-day moving average and closing in on its 200-dma.
Once again, the Bull/Bear Ratio gave a good contrarian buy signal, having been below 1.00 for the past seven weeks.
From a fundamental perspective, the latest relief rally got a big boost yesterday on news that U.S. manufacturing may have hit bottom according to February’s ISM survey. In addition, U.S. consumers continued to do what they do best, as car sales were very strong last month. Americans may be starting to spend their gasoline windfall to cover some of the monthly payments on their new gasoline-guzzling pickup trucks. On Monday, the PBOC lowered bank reserve requirements, and pledged not to devalue the yuan. The price of oil has been firming on news that US frackers are shuttering output, but will be back if the price of oil rallies to $40 a barrel. On Monday in China, FRB-NY President Bill Dudley strongly suggested that the FOMC won’t be hiking the federal funds rate again at the March meeting.
Let’s have a closer look at a couple of these developments:
(1) US manufacturing showing more signs of life.
The US M-PMI rose from January’s 48.2 to 49.5 last month. Strong domestic demand is offsetting weak overseas demand. Bloomberg reported, “For the first time since August, at least half of the industries expanded in February, with 9 of 18 showing growth. Makers of wood products, textiles, furniture and chemicals were among the top performers. The list of comments by respondents also skewed to the positive, with a purchasing manager at a chemical company highlighting the difference between solid demand in the U.S. and softer growth internationally. …. The report showed new orders grew in February for a second month and production expanded at the fastest pace in six months. Holding back the top-line reading were reductions in employment and stockpiles. Without the contraction in inventories, the manufacturing gauge would have been over 50.”
(2) Fed officials having second thoughts.
Fed Vice Chairman Stanley Fischer has been overtly ambiguous about the outlook for monetary policy. In a February 1 speech,
he said, “Now, I expect that in a few minutes one of you will ask not about what we did at our last meeting, but rather what we are going to do at the next one. I can’t answer that question because, as I have emphasized in the past, we simply do not know. The world is an uncertain place, and all monetary policymakers can really be sure of is that what will happen is often different from what we currently expect. That is why the Committee has indicated that its policy decisions will be data dependent.” He said virtually the same in a January 23 speech,
just in case we missed his earlier pronouncements on this subject.
Keep in mind that this is the same important fellow who contributed to the global financial turmoil at the start of the year when he said in a January 6 CNBC interview
that four interest-rate increases in 2016 were “in the ballpark.” That was the outlook for interest rates implied by the “dot plot” of FOMC members’ projections for the federal funds rate at their December meeting. Later, Fischer backtracked during the Q&A following his 2/1 speech: “When somebody [says] ‘in the ballpark,’ [it means] it is among the numbers that are being talked about [not] the only number that is being talked about,” as reported by MarketWatch.
Less ambiguous but more flip-flopping views on the outlook for monetary policy have been expressed by NY-Fed President Bill Dudley recently. In a January15 speech
, he said that “the U.S. economy appears to be on sufficiently sound footing to withstand downside shocks better than was the case a few years ago.” He seemed to be reiterating the FOMC’s December projections for interest rates when he said, “In terms of the economic outlook, the situation does not appear to have changed much since the last FOMC meeting.”
Later, Dudley backed off somewhat during a February 3 interview, as reported by Reuters
Then on Monday, in a speech
at the inaugural PBOC and FRB-NY joint symposium in China, he reiterated his softened view, saying, “At this point, I have marked down my growth outlook very modestly. However, financial market conditions have tightened since the start of the year, mostly in response to international developments. If this tightening of financial conditions were to persist, it could potentially lead to a more significant downgrade to my outlook.”
Dudley has also been second-thinking the outlook for inflation: “On inflation, we continue to fall short of our 2 percent objective” for the Personal Consumption Expenditure Deflator (PCED). He added, “This shortfall looks likely to continue longer than I had earlier anticipated due to the persistent strength of the dollar and weakness in energy prices. However, I continue to expect a gradual return to our 2 percent objective as the transitory factors that have held down inflation dissipate.” That statement seemed a bit odd given that just last Friday, we learned that the core PCED jumped to 1.7% y/y through January, up from 1.5% the previous month and from a recent low of 1.3% during October.
Dr. Ed Yardeni
is the President of Yardeni Research, Inc., a provider of independent global investment strategy research. To read more of his blogs, CLICK HERE NOW.
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