Yay for Jay!

Yay for Jay!  Stocks were propelled upward yesterday after dovish comments by Fed Chief Jerome “Jay” Powell.  Traders were given hope that rate cuts are forthcoming so they bought oversold tech stocks.

MY TWO CENTS

1.  The Fed is flexible… very flexible. The Fed Chairman spoke at a Chicago Fed Conference yesterday and suggested that if the global economy slipped that the Fed would adjust its policy to sustain the economic expansion.  That can be translated as: we will cut rates if things get worse.  Stock traders who have been betting on a policy shift responded in a buying frenzy.  Interestingly, the Chairman’s comments did not represent any real departure from the Fed’s prior stance.  The Fed has all along maintained that they would be flexible based on the economic numbers.  However, Powell's comments were carefully selected to manage expectations, which is critical to ensure that markets don’t overreact when policy is actually set.  The FOMC will meet to discuss policy on June 19th and they are not expected to lower rates at that meeting but there is a 67% chance of a rate cute at their July 19th meeting.

2.  Speaking of the global economy.  WHILE YOU SLEPT, the World Bank cut its global GDP forecast from +2.9% to +2.6% for 2019.  The primary drivers of the downgrade are sluggish trade resulting from tariffs and the US-China Trade war, emerging market financial volatility, and weaker growth amongst developed countries.  The bank’s president said that “momentum remains fragile”…  see #1 above.

THE MARKETS

Stocks rejoiced in a robust rally yesterday primarily ignited by dovishly-perceived comments from the Fed Chair.  Traders also reassessed the trouncing of tech shares from a day earlier and began to think that some regulation might be OK causing them to buy the oversold sector, which pushed the Information Tech sector up by +3.26% on the day.  Fear of the ugly Mexican tariffs were also pushed aside as some Republican senators suggested that they might push back on the President.  All that positive logic sent stocks higher with the S&P500 climbing by +2.14%, the Dow Jones Industrial Average trading up by +2.06%, the Russell 2000 jumping by +2.62, and the NASDAQ 100 springing up by +2.70%.  Bonds eased off a bit and the ten-year treasury yield climbed by +5 basis points to 2.12%.  The 3-month/10-year yield curve closed out the day at an inverted -22 basis points, marking its 9th consecutive day of inversion.

WHAT’S NXT

- ADP Employment Change is expected to show that 185 K new jobs were created in May, down from last months 175 K jobs.

- Markit Services PMI is expected to come in at 50.9 in line with earlier estimates and the ISM Non-Manufacturing Index is expected to be at 55.4, down slightly from last month’s 55.5.

- The Fed Beige Book will be released this afternoon which will detail anecdotal economic conditions across the different Fed regions.

- From the Fed, we will hear from Vice Chairman Richard Clarida and Atlanta President Raphael Bostic.  Fed Governor Michelle Bowman will testify in front of the Senate Banking Committee.

- This morning Campbell Soup beat earnings by 50% and we will hear from Stitch Fix along with Five Below after the close.

daily chartbook 2019-06-05