Signal or noise. Amidst a noisy day of varied information stocks closed mixed in yesterday’s session. Extreme beats and misses combined with mixed global economic news helped the Dow and S&P rally into the close after spending the day in red.
WHAT YOU NEED TO KNOW:
1) Earnings still matter… really. In a period with a neutral Fed, above average economic output, and tame inflation, traders must take their cues from company performance. We can see that they are doing just that as we run through Q1 earnings season. Earnings beats, despite low bars, are being rewarded in the market. More importantly, earnings guidance is given heavy consideration. Alphabet/Google’s unexpected ad revenue miss announced after Monday’s bell, a result of the slowest revenue growth in several years, sent shares tumbling by -7.5% dragging down the NASDAQ with it. On the other end of the spectrum is General Electric who beat on both top and bottom line announcing that it had ONLY burned through $1.2 billion in cash, far less than expected. The encouraging news sent GE shares up +4.52% in yesterdays session. Finally, WHILE YOU COMMUTED home yesterday, Apple who announced after yesterday's close, reported that it had beaten both revenue and earnings estimates. Though earnings growth declined, traders celebrated upbeat forward guidance which included a boost in stock buybacks and the dividend. Apple’s shares rallied by more than +5% after the bell and will take center stage in today’s session. With many more similar stories yesterday and many more in store for today, paying attention to earnings reports is a worthy endeavor.
2) US-Chinese trade talks continue to progress. This according to Steven Mnuchin in a tweet as he returned from Beijing. China has reportedly agreed to relax restrictions on foreign investment, one of the major sticking points in the trade spat. More on that next week as China’s Vice Premier Liu will be in Washington for further talks.
3) Rates still matter, too! President Trump certainly thinks so. In a tweet he urged the Federal Reserve to cut rates by 1% and resume quantitative easing to goose the economy, pointing to China as an example of how to control and manipulate the economy. Though a tweet such as that would have been met by a rally in both stocks and bonds historically, the sound off was largely ignored as traders have become immune to the bluster. The Fed is likely to have the same response as the independent body concludes their two-day policy discussion today. The Fed is largely expected to keep rates steady, but we can expect them to take note of the low inflation environment, which may stoke some speculation of rate cuts. A rate cut, though unlikely, would certainly be well received by both stock and bond investors.
THE MARKETS:
Stocks spent most of the day in red yesterday with mixed signals from earnings and economic releases. Consumer confidence is up in the US and the Eurozone economy grew slightly more than expected, while Chicago PMI and China’s Manufacturing PMI came in below expectations. Earnings were a mixed bag with some notable beats and some big misses. The result was a mixed close with the S&P500 closing up by +0.15% (a third all-time high close in a row), the Dow Jones Industrial Average climbing by +0.1%, the Russell 2000 slipping by -0.45%, and NASDAQ 100 trading off by -0.73%. Bonds erased the prior session's loss leaving 10 year treasury yields at 2.5%, up +2 basis points. Crude oil climbed by +0.65% in yesterday’s session as a result of Saudi Arabia’s oil minister announcement that they were not going to be increasing supply and the political tension in Venezuela. Still crude supply is on the increase and demand forecasts are mixed which can lead to more volatility for the commodity. The weekly EIA US oil inventory report is due out today at 10:30 AM Eastern.
WHAT TO LOOK FOR TODAY:
Today’s big news will be the FOMC rate decision which will come out at 2:00 PM Eastern. The Fed is not expected to change rates, but the carefully crafted policy statement will be parsed for hints of future hikes. Likewise, Chairman Powell’s post-release press conference will be chock full of hints, clues, and overtures about the state of the US economy and the future path on monetary policy. Traders will be watching carefully. This morning, we will get the ADP Employment Change number which is expected to show that 180k new jobs were created in April compared to May’s +129k. Markit Manufacturing PMI is expected to be flat at 52.4 and ISM Manufacturing PMI is expected to be 55.0 compared to last month’s 55.3. The Census Bureau’s Construction Spending number is expected to show a 0% growth after registering a +1% gain last month. Before the bell earnings releases include Kraft-Heinz, Sprint, Hilton, Humana, Estee Lauder, CVS, Royal Caribbean, Yum Brands, and Molson Coors. MetLife, Prudential, Allstate, Qualcomm, and Square will report after the bell, amongst others. Attorney General William Barr will testify before the Senate and face tough scrutiny over his release of and possible mis-characterization of the Mueller report.