Baby, it’s cold!

Baby, it’s cold!  Temperatures were way down across much of the US but stocks continued to go up with Fed winds still in the sails and continued good earnings releases.  Stocks spent yesterday in the black closing near their session highs on more good feelings fueled by earnings and tweets.

What you need to know:

1) Traders dusted off their “don’t fight the Fed” banners and continued the buying that started with Wednesday’s FOMC meeting conclusion.  The buying was not limited to stocks as bonds rallied on Powell’s balance sheet revelations.

2) Earnings continue to be solid but mixed, prescribing close scrutiny.  Facebook announced with a solid beat after the close on Wednesday adding more fuel to the already burning FAANG fire started by Apple the day before.  Facebook’s shares rose by +10.82% helping the FAANG+ index rise another +2.78%.  On the other end of the spectrum was Dow DuPont, whose shares fell by -9.3% in yesterdays session after they announced a miss and lowered guidance prior to the bell.  The stock’s underperformance held the Dow Jones Industrial Index back yesterday as it closed down slightly while the other major indexes closed up.

3)  Trade talks with China appear to be going smoothly.  Though the signals can be read in many ways, the general mood of a series of Presidential tweets seem to be pointing to positive progress.

Stocks and bonds had a positive day yesterday as the newly neutral Fed freed investors up to start buying stocks on their wish lists.  The Fed’s dovish showing on Wednesday has some analysts believing that their next move may be a rate cut marking the end of this tightening cycle.  While the Fed certainly did change its posture to neutral in Wednesday’s statement it is important to note something that we have all probably heard many times in our lives.  Read the fine print.  The Fed’s statement said nothing about a faltering economy that would require stimulus, they simply took out the statement of gradual rate hikes.  Further, December’s dot plot still has Fed governors predicting two rate hikes in 2019.  Granted that was December, but all of the cross current data was certainly available at the time of its release.  We won’t see another dot plot until March.  Moving on to Chairman Powell’s press conference, he reiterated that the Fed would be patient and data dependent.  Patient because the stock markets were roiled in November and December in response to his aggressive posturing.  Oh yeah, and there are some signs of distress coming from the global economy…. AKA a Chinese economic slowdown.  Now that stocks have all but recovered from the 4th quarter drubbing and a possible positive outcome in the US China trade war, the cross currents may go away clearing the path to further rate hikes.  The bottom line is that the Fed’s statement was certainly good news for stocks, but investors too must be patient and data dependent because today’s investment thesis can turn around rather quickly.

This morning we will get the always anticipated monthly Employment Situation from the Bureau of Labor Statistics.  Non-farm Payrolls is expected to show that 165k new jobs were created in January versus 312k from December.  The Unemployment Rate is expected to come in unchanged at 3.9%.  Average Hourly Earnings, a good gauge of early inflation, are expected to have grown +3.2% year over year, unchanged from last month. Also this morning, we will get some more reads on manufacturing starting with Markit Manufacturing PMI which is expected to come in at 54.9, unchanged from last month.  Later this morning we will get the ISM Manufacturing PMI number, which is expected to come in at 54.0, down slightly from last month’s 54.1.  Finally, we will get the University of Michigan’s Sentiment indicator, which is forecast to come in at 90.7, flat from last month’s figure.  All of this before 10:00 AM!  A number of earnings releases are scheduled before the opening bell and so far all but three that have been announced by the time of this writing have beaten Wall Street estimates.  Next week will be dense with more earnings announcements and economic releases.

daily chartbook 2019-02-01