Wednesday, May 1, 2019

This Morning's Log Entry: The Fed Announcement Today Will Be Telling

The week so far has seen no letup in this earnings season’s high percentage of bottom-line beats (relative to lowered expectations). Even top-line numbers, which have been relatively disappointing in terms of % beats, have shown a notable pickup in that category over the past few days.

Apple last night didn’t disappoint, and, consequently, its stock is up a whopping 5% in the premarket -- which isn’t hurting the prospects for a strong move at the open this morning, although right now futures are trailing off a bit from where they were overnight (Dow’s looking to open around 80 points higher, SP500 up .25% and the Nasdaq looking at an impressive .7% surge to start the day).

The data this week has been net positive, with this morning’s ADP jobs number blowing away expectations by 95k!

This literally incredible narrative that the economy is in need of, or, beyond a massive sugar rush that would be seen first in the equity markets, would ultimately benefit from a 1% fed funds decrease and a round of quantitative easing is, well, incredible. Low inflation by itself is no reason whatsoever to open the monetary taps in an economy that, clearly, is not exhibiting virtually any of the telltale signs that a near-term recession is at all in the cards.

With regard to the Fed, fostering an attitude that anything other than an optimistic statement today, amid a willingness to remain neutral going forward, would be disappointing is potentially counterproductive to the ultimate objectives of those proposing such a narrative. I.e., we’re not presently looking at one of those good-news-is-bad-news (because it’ll keep the Fed from cutting) market/economic setups -- so if you're needing the market to rise, by all means don't foster one -- despite the, to me, bizarre fact that fed funds futures are pricing in a 65% chance of a rate cut by the end of this year.

While yesterday saw a nice move at the close, and today we’re looking at green arrows at the open, given the latest data, the patient Fed (should be confirmed today), very good earnings numbers (relative to expectations), and the major averages breaking out into new highs, I have to characterize the extent, and the breadth, of the stock market's move thus far as somewhat muted.

The market’s reaction to today’s Fed announcement will be telling in terms of the extent to which equity traders are actually counting on a rate cut(s) later in the year. If indeed that sentiment is at all prevalent, I strongly suspect they’ll be disappointed. I.e., while economic conditions aren’t what they were a year ago, they’re definitely okay, which is definitely what we should hear from the Fed today. And, thus, the market should welcome such a message. Again, its reaction will be telling...

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