For the week ending April 29, 2015, the Dow and the S&P 500 are in consolidation after making new highs on Monday. The FOMC announcement had a slightly more hawkish tone leading the markets down at the close on Wednesday. In other news: the U.S. economy stalls in the first quarter; China will become Apple’s top market; and Greece is a step closer to a deal.
The FOMC announcement today opened the door to a rate hike in June. While the probability remains low, the slightly hawkish tone of the Fed resulted in a slump in equities by the close. Many analysts feel the Fed (which believes the economy will rebound in the second quarter) is simply keeping its options open. Indications are the Fed would like to initiate a rate hike soon, but at minimal increments. Earlier today, GDP came in at only 0.2 percent for the first quarter; a period marked by severe weather, low crude oil prices, and a surging dollar that curbed American exports. The only bright spot was pending home sales for March, which came in higher than expected (the third straight month of increases).
The U.S. economy stalls in the first quarter, due to a number of factors. GDP was only 0.2 percent; far below the fourth quarter GDP of 2.2 percent, making this the weakest reading in the last twelve months. Many economists believe that temporary factors caused the slowdown: the extreme weather this past winter that weakened consumer spending; the labor dispute (which is now resolved) which severely hit the West Coast ports that are normally busy; a strong dollar which reduced exports; and low crude oil prices that curtailed expansion plans of energy companies. Despite the big drop in gasoline prices (now averaging around $2.50 a gallon), consumer spending dropped as savings hit $727.8 billion this quarter (up from $603.4 billion last quarter). In addition, spending on non-residential structures (including oil exploration and drilling), was down a whopping 23.1 percent.
China will become Apple’s largest market. China is currently the second largest market for Apple, having leapfrogged ahead of Europe. Apple’s second quarter revenue from China reached $16.8 billion (Europe was $12.2 billion); a year-over-year jump of 71 percent. The U.S. is Apple’s top market, bringing in revenue of $21.3 billion; but more iPhones were sold in China than any other market. At its current pace, China should become Apple’s top market by the end of fiscal 2016.
The Greek debt crisis is a step closer to being resolved. Greece will present a draft list of reforms soon, in an effort to release much-needed additional aid. The draft will focus on measures to reduce corruption and tax evasion. While this represents a partial reform, it is an important step if the Greek government can accomplish this goal. June will be the critical period, where the risk of a referendum and government collapse looms.
If you’re trading options, it is suggested trading Put Credit spreads for next week at 1.75 standard deviations or greater. Expect the price of the SPX to fall within 2063 and 2150 (2 standard deviations) by this Friday.
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