US stocks look to extend rally as 2-day Fed meeting begins

Summary:

• More gains for US stocks as Fed meeting begins

• Blackrock warns of “3 milestones” ahead for S&P500

• Tesla falls on Musk Tweet scandal

Stock markets bulls across the Atlantic seem to be attempting to front run the Fed, with equities soaring heading into what could be a major event. The FOMC have begun their two day meeting with the policy decision due at 6PM Wednesday, followed 30 minutes later by a press conference with Chair Powell. U-turn in the bank’s policy is arguably the single largest factor behind the sensational recovery rally seen so far this year and investors are seemingly betting on more support tomorrow evening (read our full Fed preview here).

The Fed decision to not turn dovish after their December meeting caused the final swoon lower for US stocks at the end of last year, with the S&P500 dropping over 200 points in the 4 sessions that followed. While the markets actually bottomed on Boxing day, it was Powell’s speech at the start of 2019 that saw the bounce gain traction as the Fed chair changed tack and reigned in comments about the bank’s balance sheet reduction policy being on autopilot.  This message was reiterated as the Fed confirmed their dovish shift at the end of January following their policy meeting with the market making a key break higher above 2678 and barely looking back since. Will the Fed provide more fuel to the rally this week and complete the recovery by sending US stocks to record highs, now less than 4% away? Source: xStation

While the Fed no doubt have the ability to provide further reason to rally, there are elevated expectations going into the meeting and they may well decide against delivering a big dovish boost. Blackrock’s chief equity strategist Kate Moore is looking beyond the meeting and has identified 3 key “milestones” over the next couple of months that she believes will need to be passed for a significant move to the upside. The first is earnings season which is now just a few weeks away while issues overseas relating to the Eurozone economic slowdown and Chinese trade negotiations complete the trio.  

One stock that is failing to join in the broader rally is Tesla, and the electric carmaker is trading lower once more today as the CEO and founder Elon Musk continues to attract unwanted attention. The SEC is pursuing Musk in relation to a February 19th tweet, where he claimed the firm would build around 500,000 cars in 2019. The SEC asked Tesla in late February whether any of Musk's tweets had been pre-approved since that policy was adopted, according to the filing in federal court in Manhattan (Following his infamous “funding secured” tweet last year which suggested the firm had an offer to take the company private which sent the stock soaring, Musk is supposed to have communications pre-approved.)

"It is therefore stunning to learn that, at the time of filing of the instant motion, Musk had not sought pre-approval for a single one of the numerous tweets about Tesla he published in the months since the court-ordered pre-approval policy went into effect," the SEC said in the filing. By itself this latest development may not be too damaging but it once more reminds investors that Musk is attracting unwanted attention at a time when the firm are struggling to turn profitable after cutting the price of its Model 3 sedan to $35,000. Shares in Tesla are down by around 2% in early trade.

Tesla shares have fallen lower once more and are now far from the lower bound of the trading range seen in the past couple of year around 240. Source: xStation