US stocks remain under pressure as Philly Fed falls to 2-year low

Summary:

• Stocks remain lower after Wednesday’s sharp reversal; US500 < 2530

• The drop was the worst on Fed-day since 1994

• Philly Fed drops to lowest in over 2 years

Yesterday was all about the Fed and the highly expected event didn’t disappoint as far as the markets were concerned with a huge move seen in US stocks. Unfortunately for those betting that a dovish shift would occur and that the bank would provide some support given the recent declines in the stock market they were disappointed with the US500 dropping almost 100 points from its highest level of the day following the announcement.

During the plunge the market smashed through 2018 lows around the 2530 mark and remains below here in breakout territory. This is the first time that the S&P500 has made a calendar year low in December since 2000 and the time before that was back in 1987! The price action remains ugly for the markets and unless it can get back above the 2530 mark and make this break lower a false one, then there’s scope for another flush lower into year-end.

The US500 plunged after the Fed rate decision with the market taking out the prior 2018 lows of 2530. In breaking this support there’s now scope for further declines with 2400 the next real swing level to the downside. Before that daily lows of 2478 could be worth watching closely. Source: xStation

Ahead of today’s US open we’ve had some second tier data which on the whole doesn’t bode too well for the world’s largest economy. The main disappointment comes in latest reading from the Philly Fed manufacturing index which fell to its lowest level since August 2016 in declining to 9.4. Given that this reading was 12.9 previously and the consensus forecast was for a rise to 15.1, it’s not hard to see this is a clear negative surprise.

The sharp drop in the Philly Fed release has raised concerns that US manufacturing on the whole may be slowing, and the next ISM release will be keenly viewed. Source: XTB Macrobond

At the same time as the manufacturing data there was some slightly better news from the labour market with the weekly jobless claims coming in below the 216k expected at 214k. With a prior reading of 206k and considering the small nature of the beat this isn’t really too positive on the whole however. The US labour market continues to remain strong with the 4-week moving average not far from its lowest level in recent years.   

Initial jobless claims rose slightly in the past week but still came in better than expected. Longer term this unemployment indicator remains near the lower end of its range. Source: XTB Macrobond