Merrily floating along. Stocks closed moderately higher yesterday as the Fed did nothing… as expected. Inflation ticked up slightly, but the central bank says: “meh”.
N O T E W O R T H Y
- The sound of silence. Yesterday’s Fed meeting was the underwhelming event that all investors were waiting for. The FOMC unanimously agreed to keep interest rates steady at 1.75%. Their policy statement was generally in line with the previous one with one key addition, stating that they would “continue to monitor global developments and muted inflation pressure”. If you follow these things, as I do so you don’t have to bore yourself with details, you would know that the Fed almost always says that they will continue to watch things closely. After all, we tax payers do pay the central bankers and hope that they are showing up for the shift. That aside, yesterday’s version of that could be viewed as being slightly dovish as they are calling out some of the global events which don’t appear to be getting any better anytime soon (trade, German contracting PPI, Brexit, weak Chinese economy). They also highlight inflation as being muted. Your first thought is: “great who wants to pay more for gas and chicken”, because inflation is not good for consumers. The Fed has a completely different challenge. For them, they would like to see a little inflation, like around 2% a year, so that businesses and commodity producers can increase their revenues. So when inflation is weak, the Fed might decrease rates to increase consumer spending and thus increase prices. If it’s too high, the Fed would be inclined to raise rates to slow down spending thus bringing prices back down. Ok that’s the basics, but their policy statement is really saying that the Fed has room to cut rates further if things get bad, because inflation is under control. Interestingly, yesterday morning's CPI release from the Bureau of Labor Statistics showed that prices increased by a greater than expected +0.3% last month bringing up the annual growth rate slightly above the Fed’s target to +2.1%. The Fed’s dot plot, which shows FOMC member rate forecasts, indicated that the body believes that rates will remain constant for all of 2020. The net net: nothing exciting but ever-so-slightly dovish.
- Vacation hasn’t begun yet. It’s the most wonderful time of the year, according to the popular 1963 Christmas song. Surely Andy Williams was not singing that as he watched the stock market, even though the S&P500 rose by +3.88% in December of that year… after first falling by -2.7%. I have written about Santa Claus rallies which happens as trading intensifies in the final days of the year. Historically, they tend to be more positive than negative and most likely occur as retail investors clamor to get in on the action while institutions are repositioning for year-end. Of course, it helps that folks are generally in good spirits. Now in reality, things today are very different than they were in the past. Most investors have access to vastly more financial, political, and social information than ever before. And as we know neither politics nor financial markets go on vacation, except for maybe two days. There is a lot going on that can affect markets in coming weeks which could cause volatility so we need to remain vigilant… of course, please also remain joyful.
THE MARKETS
Stocks ticked up slightly yesterday, helped by the Fed, after fading earlier in the day. The S&P500 traded up by +0.29%, the Dow Jones Industrial Average advanced by +0.11%, the Russell 2000 ticked up by +0.01%, and the NASDAQ Composite Index climbed by +0.44%. Bonds traded up and 10-year treasury yields slipped by -4 basis points to 1.79%.
NXT UP
- The Producer Price Index is expected to have grown by +0.2% compared to last month’s growth of +0.4%. Year over year, the PPI may have grown by +1.3% compared to last month’s read of +1.1%.
- The Treasury will auction 30-year bonds today.
- The UK is conducting a general election today and its results will have an impact on the ongoing Brexit saga.
- This morning, Ciena missed expectations and we will hear from Broadcomm, Oracle, Costco, and Adobe after the bell.
On tour
Destination: Midtown and Westchester, New York offices over the next several days. Destination: Miami and Boca Raton January 8th -10th. Please reach out to set up some time to come in and meet me.