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Market Lab Report - Premarket Pulse 11/18/16

Major averages rose yesterday on mixed volume. Both the S&P 500 and NASDAQ Composite are a breath away from all-time highs. All majors managed to close near their intraday highs.

Markets reacted positively to strong economic data as initial jobless claims fell last week to 235,000, a 43-year low, while October housing starts shot to a 9-year high. The consumer price index rose 0.4%, and year over year, the CPI climbed 1.6%, the most in two years. Core inflation was 2.1%.

Market also reacted favorably to Fed Chair Janet Yellen's testimony which reflected a stronger economy. Inflation is approaching the FOMC's 2% objective and unemployment remains low which offers headroom for a rate hike. She said that holding rates too low for too long could force the Fed to raise rates hastily.

"Were the FOMC to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the Committee's longer-run policy goals. Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability," Yellen said.

Yesterday's action contrasts the sharp selloff on September 9 when Fed President Eric Rosengren turned hawkish saying the US central bank could resume gradual rate hikes as the risks facing the economy are more in balance. The Trump factor seems to be in play. The question is whether Trump's pro-business policies are strong enough to negate a market correction due to a shift from a looser to tighter monetary policy.

Futures are roughly flat as ECB President Draghi maintains a pro-QE stance, saying their economic recovery continues to rely on monetary support. Meanwhile, St. Louis Fed President Bullard, an FOMC voter, is leaning towards a December hike.

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