Disney responds to activist investors

Stocks had a mixed close yesterday with no real economic data to mull over. Fed speakers did their best to push indexes to and fro, ahead of a bill-topper talk by Fed Chief, later today.

If you give a mouse a cookie. Stocks continue to exude cautious optimism in the low information vacuum we are in. The next time the FOMC meets is in mid-December less than two weeks before markets go on holiday. Earnings season is still in full swing, but past its mid-point. Horrible war grinds on in Eastern Europe and the Middle East. Washington DC… remains Washington DC. The VIX Index, which some call the fear index, is around 14, which means fear-not-so-much, right now. Treasury bond yields have pulled back a bit but are still high by recent standards. I suppose, you might say the same thing about inflation, which remains high but has eased back from its painful zenith. That leaves just one thing to do… hope.

Stocks have surprisingly held their positive momentum since last week’s FOMC meeting where, really, the only guidance traders got was what the Fed did not say. No one was expecting rate hikes, but there was an unspoken fear that the Fed would come out with continued hawkish gesticulating in order to keep the markets in check, but that was absent. What we got was “we are pausing, but we reserve the right to raise rates more, if the necessity arises.” This was interpreted by the markets as somewhat positive… which you have probably figured out by now.

Across the pond in the EU, ECB bankers are a bit more vocal about their plans, which have a markedly more dovish tone. Many ECB ministers are making it clear that their hiking is over. Granted, the EU is a different kettle of fish than the US, with at least one of its members slipping into technical recession. In monitoring Fed speakers over the past few days, it seems that Fed members are content with rates where they are. They all say it in different ways. One warns that the Fed has to be careful not to overshoot with rates, while another refers to the Middle East conflict adding uncertainty. A small minority says that higher rates may be necessary. But one thing no one would dare mention is rate cuts. So, the net-net from all this Fed speak is that rates are expected to remain here, but for an undisclosed amount of time.

The big question is how long will stock traders be content with that guidance? If you look at futures, there is a minimal chance of any more hikes over the next few FOMC meetings with any meaningful potential for cuts appearing next May/June. From there rates are expected to fall dramatically through the end of 2024 ending the year a full percentage point lower than where they are today. The Fed’s last projection does not agree, forecasting rates only -25 basis points lower for the end of 2024. The Fed will provide an updated projection next month, where traders will surely be looking for more guidance than policy makers have been willing to provide heretofore. That may or may not come at a very vulnerable time for the markets. Last week’s FOMC meeting was a cookie. You know, if you have kids or grandkids of a certain age, that if you give a mouse a cookie, he’s going to ask for a glass of milk. Similarly, if you give a moose a muffin or a pig a pancake, you had better be prepared with some jam or some syrup.

WHAT’S GOING ON THIS MORNING

The Walt Disney Co (DIS) shares are +4.19% higher in the premarket after it announced a sizable EPS beat for last quarter. The company announced continued expense cuts going forward which have been given a round of applause by investors, though cost cutting doesn’t always fix revenue growth problems . The company did announce plans to resume its dividend program after suspending it in the pandemic. Potential average analyst target upside: +25.9%.

MGM Resorts (MGM) shares are higher by +3.26% in the premarket after it announced that it beat EPS and Revenue estimates by +42.96% and +2.73% respectively. The company also announced an increase in its $2b stock buyback program. Potential average analyst target upside: +43.2%.

YESTERDAY’S MARKETS

NEXT UP

• Initial Jobless Claims (November 4) is expected to come in at 218k compared with last week’s 217k new claims.
• Fed speakers today: Bostic, Barkin, and Paese. Chairman Powell will speak at 2:00 PM Wall Street Time.