| Wednesday's Headlines 1. S&P 500 and Nasdaq Composite hit new record highs 2. Blue-chip tech stocks lead the pack 3. Investors show concerns despite new highs 4. FOMC meeting minutes reveal confidence Markets Closed
 Markets Today Continuing in the spirit of "buy the dip and watch it rip" that has pervaded U.S. investor sentiment for quite a long time now, large-cap indexes including the benchmark S&P 500 and Nasdaq Composite once again booked new record highs on Wednesday after a shallow dip on Tuesday. Large-cap tech stocks led the way, as we saw with a key tech sector ETF (shown below) as well as the tech-heavy Nasdaq Composite. For its part, the Dow Jones Industrial Average climbed 115 points, though it fell short of reaching new highs.
We've noted before that global economic worries remain, especially due to the burgeoning coronavirus epidemic in China that currently shows few, if any, signs of relenting. Only a day earlier, Apple (AAPL) warned of a significant hit to its revenue for the most recent quarter due to both lower demand and decreased production in China. But this registered only as a rather small and temporary blip, failing to deter investors in any significant way. As we discuss below, however, there are still signs that investors may not be as complacent as market prices may indicate.
We'll also give a quick overview of Wednesday's release of the FOMC meeting minutes. Nothing surprising there, but the Fed's assessment that the economy has become stronger may have added a bit more fuel to the market rally. Headlines:
Blue-Chip Tech Stocks Lead The Technology Select Sector SPDR Fund (XLK) is a major tech sector ETF that reflects the performance of large-cap tech stocks. XLK is heavily weighted towards tech behemoths, with its top two holdings being Microsoft (MSFT) and Apple, by a large margin. These two holdings combined currently account for about 40% of the ETFs holdings.
On Wednesday, we saw AAPL partially recover from its dip a day before and surge by 1.45%. Though MSFT was flat on Wednesday, it's been rising sharply since the last quarter of 2019, and now trades just off its lofty all-time highs. These two stocks have helped pull up the tech sector, especially large caps, resulting in the steep upward trajectory that you can see on the one-year performance chart below of XLK vs. the SPDR S&P 500 Trust ETF (SPY). Though the red-hot tech sector may be due for a technical pullback after reaching a new record high on Wednesday, the strong upside momentum is undeniable.  Investors Show Concern Despite New Highs Despite new record highs for large-cap U.S. indexes, hints of investor concern remain. For one, the CBOE Volatility Index (VIX), otherwise known as the "fear gauge," remains elevated, even as the S&P 500 has continued to reach progressively higher all-time highs. The VIX represents the market's expectation of volatility over the next 30 days.
In more practical terms, the VIX uses S&P 500 options pricing to determine investors' fears and concerns about the market, or more specifically, market declines. When the S&P 500 falls, the VIX tends to rise, sometimes rapidly. And when the S&P 500 rises, the VIX tends to revert back towards its baseline lows around 12. As shown on the one-year chart below, the VIX continues to hover well above 12, even though the S&P 500 reached a new record on Wednesday. This provides some indication that investors continue to worry amid the monster rally.  Another indication that sentiment may not be as rosy as the market may lead you to believe comes from the BofA Global Research team. From its February Fund Manager Survey, researchers found that "rising COVID-19 fears, notably around Chinese growth, led to the first cut in FMS global growth, global profits & global inflation expectations since Oct'19."  FOMC Meeting Minutes Reveal Confidence Finally on Wednesday, we had the release of the FOMC meeting minutes from the Federal Reserve's late-January policy meeting. The meeting minutes aren't typically big market movers since the Fed announces its stance on interest rates and policy directly after the actual meeting takes place. But investors like to read into the nuances of the minutes to try and decipher any further indications as to the Fed's next move.
In the case of Wednesday's minutes, there wasn't much that was revealed that wasn't already known. Most importantly though, FOMC members felt confident that the U.S. economy had become stronger than it was during the previous meeting. Also, members felt that the "current stance of monetary policy was appropriate." Meanwhile, the futures market continues to price in one or two further interest rate cuts this year. Members did discuss the potential impact of the coronavirus outbreak on the U.S. economy, but the discussion was not extensive.
After the release of the FOMC meeting minutes, U.S. stocks rallied even more, but pulled back moderately towards the end of trading.
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(chart courtesy YCHARTS)  A number of natural gas companies rose today as natural gas prices shot up by nearly 8% after weather forecasts predicted colder weather across much of the U.S. next week. Among companies benefiting from the expected increase in demand are Antero Midstream and Chesapeake Energy. Tesla shares rose yet again after an analyst from Piper Sandler raised their target price to $928.  Financial services firm, Ally Financial, fell more than 10% after it announced it was purchasing CardWorks, a credit card issuer. Shares of bluebird bio fell today after it announced that FDA approval for one of its gene therapies will likely be delayed. Self-storage REIT, Extra Space Storage, gave lower-than-expected guidance sending many other storage REITs down as investors worried that the problems Extra Space suffers from may extend to the entire sector. Word of the Day Created by the Chicago Board Options Exchange (CBOE), the Volatility Index, or VIX, is a real-time market index that represents the market's expectation of 30-day forward-looking volatility. Derived from the price inputs of the S&P 500 index options, it provides a measure of market risk and investors' sentiments. It is also known by other names like "Fear Gauge" or "Fear Index." Investors, research analysts, and portfolio managers look to VIX values as a way to measure market risk, fear, and stress before they make investment decisions.  Today in History February 19, 1473 Today in 1473 Nicolaus Copernicus was born in what is now Poland. Copernicus proposed the heliocentric model of the universe in which the planets, including the Earth, revolve around the Sun. This was counter to the prevailing geocentric model, put forward by ancient astronomer Ptolemy, in which all astronomical bodies, including the sun, revolved around the Earth. Because some planets, such as Mars, appeared to move backwards in their orbits, for the geocentric model to be true, their orbits would be complex coil-like spirals. If the planets instead revolved around the sun at different rates, then planetary motion could be explained with simple, circular orbits. Copernicus is now considered one of the first figures of the Scientific Revolution for his challenging of established scientific models.
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Wednesday, February 19, 2020
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