More leftovers? Stocks rose slightly on no real news. Trade talks hit an impasse but bulls keep charging ahead, unawares of mounting risks.
MY TWO CENTS:
- What did he say, exactly? It was supposed to be the big distraction. That media event that “legit” news services would run in lieu of the ubiquitously aired impeachment trial. The Chairman of the Federal Reserve was going to address Congress on the state of the economy to tell lawmakers - you know - about what’s happening in the world of finance… as if they haven’t been viewing Fed press conferences and watching the little screens on taxi cab payment devices. Back in the day a visit from the Fed Chairman was an opportunity to get a glimpse into what was really going on. I hate to sound trite, but given the state of technology there is very little information unknown to anyone with a smartphone and a 3 minute elevator ride. But this was the Chairman of the Fed - the architect of the stock market’s sharp turnaround from last Decembers ugly fallout. What would he tell lawmakers about policy that might inform traders about where the markets might be in say, 12 months from now. And the verdict is… absolutely nothing!! Unemployment is low, economy looks OK, dealing with short term liquidity, and inflation is under control (CPI came in lower than expected today at 2.3%). There are still some risks from global economic slowdown and potential trade issues. Barring those, monetary policy is in good shape. In other words: “We are done lowering rates… for now”. Of course, if things change, policy will be adjusted to deal with any issues. Sound familiar? If you read my report regularly it should. Even lawmakers were underwhelmed… and so was the market.
- A penchant for risk. Despite all of the non-news resulting from Chairman Powell’s speech and a disturbing report about Chinese trade talks stocks appear to be… optimistic. Today, the Wall Street Journal reported that there is a snag with China’s purchases of agricultural products. Wait, what??? The President announced that China was going to make the biggest purchase of farm products… ever! China was supposedly going to purchase $50 million in goods from farmers. It has never been clear what concession the US would make to secure the purchase. President Trump debunked the rumor that the US would roll back some existing tariffs and Larry Kudlow seemed to back that up yesterday with the press corps. That only leaves a delay of the tariff’s due to take effect next month. According to the Journal article, Chinese officials are now reticent to agree to a fixed amount of purchases along with all sorts of other concessions (including intellectual property rights and currency manipulation) for the small US concession. One would expect this sort of news to roil the markets. It did serve to push prices down somewhat, but nowhere near the magnitude that many would expect. Did I mention that the Federal Deficit just topped $1 trillion for the first time in almost seven years? There was some good news. Disney announced that its 1-day-old Disney+ streaming services has 10 million users. Disney shares climbed +7.32% helping the Dow Jones and S&P500 advance. Netflix, fell by -3.05% on the news holding the NASDAQ down. Still, Disney’s success alone cannot be credited with the market’s bullish tilt. Recent gains in equity markets’ suggest, what I referred to recently as, the FOMO trade. FOMO, or Fear of Missing Out, is when not only small retail investors who are last to the party but also fearful fund managers who have been sitting on the sidelines rush in to take advantage of the last push into the year end. Unfortunately, FOMO trades usually don’t end well. Hopefully this time will be different.
THE MARKETS
Stocks traded up slightly despite discouraging news about a Chinese trade deal. The S&P500 advanced by +0.07%, the Dow Jones Industrial Average climbed by +0.33%, the Russel 2000 slipped by -0.37%, and the NASDAQ Composite dropped by -0.05%. Bonds traded up and 10-year treasury yields fell by -5 basis points to 1.88%.
WHAT’S NXT
- The Producer Price Index excluding Food and Energy is expected to have dropped to 1.5% from 2.0% year over year.
- The Fed will be out in-force today with Quarles, Clarida, Evans, Daly, Williams, Bullard, and Kaplan all speaking. Oh, and Chairman Powell will be back on the Hill for a second day of testimony.
- Viacom and Walmart will announce before the bell and post-close releases will include Applied Materials and NVIDEA.