The Fed Gives A Boost – Weekly Market Outlook

Thanks to a little help from the Federal Reserve on Wednesday, the market broke out of a three-week-old bearish rut, and in the process may have rekindled a bigger uptrend.  In fact, technically speaking, the uptrend is back underway.

We’ll handicap the market below.  First, let’s run down last week’s and this week’s economic news. 

Economic Data

There’s little doubt as to last week’s economic focal point… the release of the minutes from the most recent FOMC meeting. 

It was an interesting (and a slightly mixed) message. The Fed dropped the word “patient” from the description of how long it would wait to raise interest rates, and then made a point of saying it was in no hurry to do so given the current state of the economy. 

The real curveball, though – and the key reason the U.S. Dollar may have started a pullback – was the long-term interest rate forecast the Federal Reserve’s governors offered. 

Though the forecasted average Fed Funds Rate for 2015 and 2016 was only pulled back by about a quarter of a point, that’s a huge difference… and one all the dollar’s recent bulls weren’t expecting. In fact, much of the dollar’s recent rise was driven by an assumption that rates would rise even faster than had been projected. The Fed’s message suggested the opposite was in the cards, rocking the dollar, but prodding a stock market that was growing weary of such a strong greenback. 

The Federal Reserve and the dollar weren’t the only items worth talking about on the economic front last week though. We also heard about February’s industrial productivity and capacity utilization data. The Industrial Production Index was up 0.1%, while capacity utilization fell from 79.1% to 78.9%. It’s not trouble yet, though a couple more months of the same could be a real red flag.

We also heard February’s housing starts and building permits data. Though starts fell from a pace of 1.081 million to 897,000, even on a seasonally-adjusted basis we can attribute the lull to a nasty wave of winter weather than ripped across much of the United States. The total number of issued permits actually grew, from 1.06 million to 1.092 million.