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Proprietary Trading Weekly Market Recap For Friday, June 20, 2014

|Includes: AAPL, GOOG, SPDR S&P 500 Trust ETF (SPY)

Dovish Fed Pushed S&P 500 to Record Highs

Proprietary trading price action in the equity markets focus on two distinct issues, the Fed and tension in Iraq. While the latter attempted to undermine sentiment, the former reduce volatility and pushed the S&P 500 index along with the Dow Industrials to record highs. Janet Yellen again calmed the markets worries, by having an answer that reflected her dovish view of the U.S. economic backdrop, despite the recent higher than expected inflation reports. For the week, the S&P 500 closed up 1.38% for the week.

Fed Action

The FOMC left interest rates unchanged, as expected and tapered another $10 billion worth of Treasuries and Agency bonds. There highly accommodative stance remains appropriate. As expected, there were not any surprises or many changes in the language of the statement. The Fed said the economy has "rebounded in recent months," in line with expectations and with what the data have shown. The labor market has generally showed "further improvement," but again there was the caveat that the unemployment rate remains elevated. The vote was a unanimous 10-0.

FOMC Forecast revisions from the June FOMC meeting released with their policy statement, revealed the expected big downward 2014 GDP growth of 2.1%-2.3% from 2.8%-3.0%, thanks to the massive underperformance of GDP in Q1.

Yellen cautioned there has been turnover on the Committee and suggested that might have caused small changes in the projections that are difficult to interpret. She also said there has been some slight decline in estimates for longer-term growth that could also have resulted in the downward bump to rate projections.

In her press conference following the statement Yellen acknowledged higher CPI results but countered by saying the data are "noisy." She believes overall that inflation is "gradually moving back" toward the objective and inflation is in line with projections. Regarding tolerance for higher inflation, she reiterated the 2.0% objective for PCE inflation and said they will not want to see inflation persist above the target or below the target.

Yellen seems to very concerned with the slack in the labor market, and until this issue is rectified she is likely to guide the Federal Reserve to near zero rates. From these statements, the market believes that she is unlikely to raise rates following the end of the current quantitative easing program.

The S&P 500 soared to a new record high on the back of the dovish Fed, while momentum increased as reflected by a fresh buy signal from the MACD (moving average convergence divergence) index. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The index moved from negative to positive territory confirming the new buy signal.