When it comes to the US equity markets, a new piece of history was written yesterday. The S&P 500 gained another 0.10 percent closing at another record high of 2945. The index performance during the month of April was 3.9 percent, the best April since 2009. The year to date gain for the S&P 500 index sits at 17.51 percent.
The factor which is pushing the market higher today is the stellar earnings report from Apple. The company has increased its dividend and it will also buy back $75 billion of its stock. The tech giant delivered a very clear message: the demand for iPhones is reviving. Apple’s premium for its phone was getting out of proportion and given that the company has decided to trim that premium, this has helped its iPhone sales.
Strong earnings from California based company is helping the equity markets to start the month of May on a positive note and extend their historic gains from last month.
Nonetheless, the focus for today is going to be the Fed’s statement. We know that Donald Trump has tried several times to push the Fed hand towards cutting the interest rate. In his most recent comments, he has called for a 1% interest rate cut. However, in light of the most recent data, especially the US GDP data, it has become extremely arduous for the Fed to comply with such a request. The fact is that the Fed isn’t going to cut the interest rates anytime soon and strong GDP numbers provide enough catalyst for the Fed to stay firm on their current stance.
However, there’s always a chance for a negative surprise for the market participants during the press conference by Jerome Powell, the Fed chairman. A hawkish stance by the Fed could be negative for the markets. What the market is expecting from the Fed is to remain patient and patient doesn’t necessarily mean cutting the interest rate. We all know that the Treasury market is expecting a rate cut which is at odd when we look at the economic numbers. So, if during the press conference the Fed continues to emphasize on practicing patience, the message could be taken out of its context.
Having said this, one thing is for certain, the upcoming event is an opportunity for those who love volatility. This is why we think that this event could bring some interesting moves for the dollar index and for the yellow metal. If the message reflects that the Fed cannot ignore Donald Trump’s message, we may see some weakness for the dollar index and this could push the gold price higher.
