Stocks Bounce Early, Ahead of FOMC Meeting

Stocks are enjoying a strong bounce on a better than expected housing report. But normally on a day when the FOMC meets, trading is pretty slow until after their policy announcement (2:15 EST).

May new home sales fell less than expected (-2.5%), while April sales were revised upward to +4.8%. Not bad, at least at the margin. But the total level of new home sales is still down -40% from last year. Ouch.

In the ag space, Monsanto (MON) reported better than expected earnings, and raised guidance again. But these stocks have come so far, that a bout of profit taking is a normal reaction. I still think these stocks remain buys on pullbacks, and am trading accordingly.

Darden Restaurants (DRI) also topped expectations in a tough environment, which is helping the overall retail sector.

Financials are also strong, with the bank index leading the way. I have commented on how hedge funds are massively short the financials, so this could be some short covering ahead of the Fed meeting.

Fed funds futures are forecasting a 90% chance of the Fed leaving rates unchanged at 2.00%. I think this is a good call. I don't beleive the Fed is about to raise rates, due to the weak economy and fragile financial system. I think the Fed is merely trying to jawbone the market and help support the dollar, as well as break the price of oil and commodities.

Asian markets were mixed overnight; the dollar is also mixed; the 10-year yield is up to 4.13%; and the VIX is 3% lower to 21.70

I have a meeting out of the office the rest of today, so I'll post my comments on the Fed meeting and the ensuing action tomorrow.