Mixed Signals

Mixed signals.  Stocks were up slightly yesterday amid mixed earnings and renewed trade fears.  Stocks spent most of the day in the red but managed to climb into the black on the heels of some positive news in manufacturing and despite disappointing earnings releases. 

MY TWO CENTS

1.  Words mean a whole lot.  Especially if you are the President of the New York Federal Reserve Bank.  The Federal Open Market Committee is the group of bankers responsible for discussing and voting on monetary policy.   The committee consists of seven governors and 5 regional Fed Presidents, some of whom rotate in and out of voting positions.  Aside from the Chairman, the most powerful member of the committee is the President of the New York Fed, who is also the Vice Chairman.  The roll is currently held by economist John Williams.  Last night he gave a speech in which he talked about “swift action when faced with adverse economic conditions” and “rates lower for longer”.  As one might expect, markets liked what they heard and equity futures shot up.  Only, maybe he wasn’t referring to the next FOMC meeting.  WHILE YOU SLEPT, the New York Fed in an unprecedented move, issued a statement back-walking William’s speech, saying that the Fed Boss was speaking academically about research and not actual policy.  The statement threw water on the rally, which ultimately faded.  Hmm, interesting.  Two final speeches will occur today before the black out period leading up to the July 31st meeting.  Markets will be listening… carefully.

2.  What now?  Economists have been worried over a recent soft patch in manufacturing as evidenced by last month’s regional Fed reports and PMI’s, which are hovering just above the 50 mark.  PMI’s below 50 signify contraction.  Those worried economists found themselves confused yesterday, when the Philly Fed reported the Index at 21.8 beating the expectations of 5.0 and compared to last month’s weak reading of just 0.3.  The sharp rebound is the biggest reversal in a decade and is somewhat consistent with New York’s Empire State survey which jumped to 12.9 from 4.3 earlier this week.  The Fed will have to weigh these positive moves in their rate decision later this month, wondering if the economy really needs stimulus at this point.  But wait… the Conference Boards Leading Index also came out yesterday and it showed a decrease of -0.3%, missing expectations, compared to last month’s flat reading.  The leading index is considered an accurate gauge of future economic activity.  With every good, there appears to be a bad which seems to be the recurring theme with 2019 markets.

MARKETS

Markets posted a slightly higher close yesterday in response to mixed earnings, economic reports, and stalled trade talks between the US and China.  The S&P 500 edged up by +0.36%, the Dow Jones Industrial Average climbed by +0.01%, the Russell 2000 traded up by +0.31%, and the the NASDAQ 100 increased by +0.19%.  Bonds climbed and 10-year treasury yields fell by -2 basis points to 2.02%.  Crude oil declined again, falling by -2.61% and Gold shot up by +1.37% to highs not seen since early 2013.  Gold is used by some as an inflation hedge and with increasing expectations of Fed rate cuts causing inflation, gold has ben advancing.

WHAT’S NXT

- This morning we will get a preliminary Sentiment read from the University of Michigan which is expected to come in at 98.8 compared to last month’s 98.2.

- St Louis Fed President James Bullard and Boston Fed’s Eric Rosengren will both speak today.

- After yesterday’s bell Microsoft announced a strong beat and this morning Schlumberger and American Express announced beats, while BlackRock missed estimates by -1.4%.  State Street will announce before the bell as well.

- Next week will be a big earnings week.  Economic releases will include some more housing numbers, manufacturing PMI, some more regional Fed reports, Durable Goods Orders, and Advanced GDP.

Have a great weekend!

daily chartbook 2019-07-19