US Stock Market Overview – Stocks Rise on Fed Dot Plot Change

Stocks rallied following the Fed decision to keep interest rates unchanged. The Fed altered their forecast, and now expect rates to move lower during the balance of 2019. US crude oil inventories declined more than expected, keeping prices buoyed. The drop in the US dollar also kept energy prices elevated. Most sectors moved higher led by healthcare, while financial bucked the trend.

Fed Cuts Forecast of Future Interest Rates

The Fed left interest rates unchanged but the committee expected the economys expansion to continue, while uncertainties about this outlook have increased. In light of these uncertainties and muted inflation pressures, the committee will closely monitor the implications of incoming information. Nine of 10 members of the rate-setting committee voted to maintain the federal-funds rate in a range between 2.25% and 2.5%.

The statement language was different as the Fed dropped its patient approach. Instead, the Fed pledged to “act as appropriate to sustain the expansion.” Markets took all these developments as a pre-commitment to cut rates in July.

After the FOMC decision, implied yields across the Fed Funds futures declined sharply. The January 2020 contract is now at 1.63%, which is fully pricing in three 25-basis point cuts this year. The January 2021 contract is now at 1.30%, which is fully pricing in one cut in 2020.

This appears to be aggressive as the Atlanta Fed GDPNow has Q2 growth at 2.0% down from 2.1% previously. NY Fed Nowcast has Q2 growth at 1.4% SAAR versus 1.0% previously. It also raised its Q3 reading to 1.7% from 1.3% previously.

Crude Oil Inventories Decline

Oil prices were slightly buoy following a report from the Department of Energy that showed that crude oil inventories decreased by 3.1 million barrels from the previous week. Gasoline inventories decreased by 1.7 million barrels last week and are about 1% above the five year average for this time of year. Distillate fuel inventories decreased by 0.6 million barrels last week and are about 5% below the five-year average for this time of year.

Demand increased year over year. The EIA reported that total products demand the last month averaged 20.7 million barrels per day, up by 1.8% from the same period last year. During the last month, gasoline demand averaged 9.7 million barrels per day, up by 2.0% from the same period last year. Distillate fuel demand averaged 4.0 million barrels per day over the past four weeks, up by 0.3% from the same period last year. Jet fuel demand was up 5.1% compared with the same four-week period last year.