Loosey Goosey

Loosey Goosey.  That is the name of the game in Fed monetary policy as announced yesterday.  Stocks like that strategy, and they rose in appreciation in yesterday’s session.

 

N O T E W O R T H Y

 

Protective gear: required.  Make sure you stretch and stay well hydrated today.  Yeah, it is going to be hot outside, but my recommendation was referring to the climate inside, specifically in the stock exchange.  Of course, stocks are not really traded in a physical exchange these days, but I am sure you can muster up an image for illustration.  In case you can’t, CNBC still airs some of its programming from inside the NYSE’s iconic Wall Street location.  Got it?  Good.  Let’s get started.  Yesterday, the Federal Reserve’s Open Market Committee concluded its two-day confab and announced its monetary policy.  The headline was that the Fed is leaving interest rates unchanged… at 0%. No one was surprised as it was largely expected.  Also, mostly expected was the Fed’s policy statement which is a well-crafted one-pager that is highly scrutinized for hidden messaging, placed quite intentionally by policy makers.  Here is a summary:

 

The Fed is going to continue using its “full range of tools to support the US economy”.  That means that they will continue to throw the kitchen sink at the economy to support it and ultimately provide growth. Positive, indeed..  The statement goes on to mention the coronavirus outbreak and its negative impact on economic activity and employment.  They have seen conditions improve somewhat in the past months but activity levels remain depressed overall.  The Fed believes that the “path of the economy will depend significantly on the course of the virus.”  They acknowledge that COVID poses “considerable risks” to the economic outlook over the medium term.  In light of this ongoing risk the Fed has chosen to keep rates near zero.  None of this is surprising.  So, the most powerful economists on the planet believe that the US’s economic health will be linked to the path of the pandemic.  In case you haven’t noticed, the US is not faring too well on the virus front with new cases and virus-related deaths on the increase in many regions.  Beyond the statement, which was read aloud by the Chairman at a press briefing, Powell took questions from reporters.  Chairman Powell’s answers are also carefully crafted and reporters, while respectful, make every attempt at forcing him to accidentally slip some new information.  None of that happened yesterday, but there was a credible hint that the central bankers are looking at “additional” policy measures which might be introduced in their September meeting.  Many speculate that the Fed continues to look at NIRP (Negative Interest Rate Policy) and YCC (Yield Curve Control).  They are a creative group and I am sure that they will come up with something interesting.  In the interim,  they will continue to buy lots of bonds to support the financial markets and inject liquidity into the economy.  Of course, the Fed is “prepared to adjust its plans as appropriate”.  The bottom line is that the Fed will continue to do what is has been doing.  Also hinted in the presser was the importance of fiscal policy, which is up to law makers.  That would be the follow-on stimulus package being wrangled over between Senators and the Whitehouse… time is running out as the current CARES package technically ran out last Saturday, so something by COB tomorrow would be good.  Nothing like last minute.

 

To bring all of this home is a slew of data due to hit the tape today. This morning, the Bureau of Economic Analysis will release its advance read of the Q2 Annualized GDP, which is expected to show that the measure of the US Economy shrunk by -34.5% after falling by -5.0% in the first quarter.  Before you ask the question, I will answer it:  yep, it’s ugly… but NOT unexpected.  Remember that second quarter covered April 1st through June 30th, which marked the period where most of the economy was essentially at a standstill – lockdown was at its height.  Economic activity began to pick up in the quarter’s final month as lockdown restrictions began to ease, but it was too late to have a material effect on consumption for the quarter.  Also due this morning is the Department of Labor’s Initial Jobless Claim number which is expected to show that 1.445 million new unemployment claims were filed last week, up from the prior week’s 1.416 million new claims.  The number, which had been increasing at a decreasing rate ticked up last week and is expected to tick up again this week as COVID cases have begun to spike in the prior weeks. Need I point you to the Fed warning about the economy and the path of the virus?  Did I mention that we are in the middle of 2Q earnings?  Lots of those are due today, but perhaps the most highly scrutinized ones will come after the bell.  Apple, Alphabet/Google, Facebook, and Amazon.com will provide their Q2 performance after the close.  Those four companies alone represent roughly 16% of the weight of the S&P500 Index and have very much been a driver of the index’s success in recent months.  It will be hot for sure today.

 

THE MARKETS

 

Stocks rose yesterday as the Fed pledged its continued support with an ongoing dovish posture, mostly expected and highly appreciated by investors.  The S&P500 climbed by +1.24%, the Dow Jones Industrial Average gained +0.61%, the Russell 2000 Index jumped by +2.10%, and the Nasdaq Composite Index traded up by +1.35%,  Bonds were mostly flat yesterday and 10-year treasury yields were flat as well at 0.57%.

 

NXT UP

 

– GDP Annualized (2Q) is expected to come in at -34.5% compared to last quarter’s -5.9% pullback.

– Initial Jobless Claims (July 25) may come in at 1.445 million compared to the prior week’s 1.416 million print.

– Continuing Claims (July 18) may have increase slightly to 16.2 million from 16.197 million.

– This morning’s earnings saw beats by Cigna, UPS, Eli Lilly, Carrier Global, Valero, Alexion, Northrop Grumman, Brunswick, Hanesbrands, Carlyle, Old Dominion Freight, Moody’s, American Tower, Yum! Brands, International Paper, Comcast, Proctor & Gamble, and Kraft Heinz.  Losers include Wyndham Destinations, ConocoPhillips, Apollo Global Management, Federal National Mortgage Association, and Baxter International.  After the bell we will hear from Ford, Apple, Shake Shack, Alphabet, Vertex Pharmaceuticals, Gilead Sciences, Amazon.com, Expedia, Electronic Arts, MGM Resorts, US Steel, and Facebook.

 

daily chartbook 2020-07-30 -1

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