Powell And Company Under Center As Fed Meeting Starts With Dovish Hopes

(Tuesday Market Open) There have been two major themes arguably helping to boost stocks this year: A dovish Fed and increasing optimism about a U.S.-China trade deal.

With little news on the latter front this morning, focus could turn toward the Fed, which begins its two-day policy meeting today. With the central bank widely expected to hold rates steady this week, that leaves Fed watchers to anticipate whether policy makers will telegraph more thinking on a potential rate trajectory with a change to its dot plot.

Another thing the market seems likely to watch for is any new insight into the Fed’s balance sheet plans, as a slowdown or halt to its bond reduction program could be one way for the Fed to try to give the economy a lift without taking the more dramatic step of lowering rates. The meeting concludes tomorrow, followed by a press conference from Fed Chair Jerome Powell.

Stocks appeared ready to resume rallying early Tuesday, with the Dow Jones Industrial Average ($DJI) going for a five-day winning streak even with the fact that Boeing (NYSE:BA) (BA) has shaved about 400 points off the $DJI since the company’s troubles started last week. BA shares were down just a touch in pre-market trading.

On the other front that the market has been closely watching, media reports suggest that a summit between President Trump and President Xi of China might not happen until June, but that news didn’t appear to have much of a negative impact Monday. Maybe as long as the two sides are talking and tariffs aren’t moving higher, some investors might be willing to forgive delays.

Markets in Asia were mostly lower early Tuesday in slow trading.

In other overseas news, the Brexit situation might be worth keeping an eye for its potential effects on European markets and the euro’s relationship to the dollar as more news potentially comes down the pike. The latest reports make it look like there might be a long delay in Brexit. They’re going to play the stall game, it appears, and that might be one factor helping buttress European shares early Tuesday.

U.S. stocks might be getting some support from a weaker dollar, as the Dollar Index fell again Monday and remained below recent highs.

One thing that might be holding the Fed back could be low rates overseas. The German Germany bund yield is under 0.1%, compared with U.S. 10-year yields that finished just above 2.6% on Monday. That’s a pretty wide divergence.

The S&P 500 (SPX) rose again Monday but closed just short of clearing a resistance area between 2831 and 2834, finishing right in the middle of that band. A push above that to close higher on Tuesday, if it happens, might be viewed as a sign of technical strength.

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Meanwhile, the Dow Jones Industrial Average ($DJI) has a four-session win streak going. But with Boeing (BA) still under pressure, the $DJI again under-performed the SPX on Monday.

Some analysts say follow-through buying from Friday’s rally appeared to be a factor Monday on a day when fresh news catalysts were a bit lacking.

From a sector perspective, cyclicals shined Monday, which is sometimes seen as a potential sign of underlying investor confidence. Some of the leading sectors included Energy, Financials, Consumer Discretionary, and Industrials.

One sector that didn’t do so well was Communication Services, which got weighed on in part by weakness in Facebook (NASDAQ:FB). That company’s stock had its worst day of the year, falling more than 3% amid concern about executive departures and an analyst downgrade. However, the FB softness didn’t extend much to the other FAANGs, as three of the other four rose. Amazon.com (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) - which has been on a roll - were particularly strong.

The analyst downgrading FB warned of strategic, regulatory and brand risks, Briefing.com noted.

Speaking of downgrades, JPMorgan Chase & Co. (NYSE:JPM) downgraded Yum! Brands (NYSE:YUM), sending that stock lower in pre-market trading. Some of the food brands have done well recently, like Chipotle Mexican Grill (NYSE:CMG) and McDonald’s Corporation (NYSE:MCD), so we’ll see if this is an isolated move or if it spreads.

Chipmaker stocks were mostly lower Monday ahead of Micron Technology (NASDAQ:MU) earnings later this week. Some analysts are worried about falling chip pricing and how that might factor into the company’s quarter.

So far this year, the SPX is up just over 13%, while the DJI is up just above 11%. The NASDAQ Composite (up 16.3%) is out-performing both. Meanwhile, volatility, as measured by CBOE Volatility Index, rose just slightly on Monday but remains near 2019 lows just above 13.

U.S. crude prices hit a four-month high and are threatening $60 a barrel after OPEC canceled its April meeting and Saudi Arabia said output cuts might extend into the second half of the year, according to media reports. Crude struggled a bit late last week amid economic fears, but anyone who was hoping OPEC might turn up the spigot or even say a few bearish words at the April meeting was probably disappointed with Monday’s events.

One question is whether rising oil prices might start to have an impact on commodity-sensitive stocks. Energy stocks performed well on Monday, which might stand to reason, but so far the higher crude costs haven’t seemed to hurt transportation-related companies. The Dow Jones Transportation average ($DJT) rose Monday. That index has been recovering the last week after a long slide in early March. This could reflect consumer health.