Don’t stop the music. Investors spent yesterday feeding their Fed disappointment with selling. Still disappointed in Jerome Powell’s Wednesday admission that the recent decline in inflation was transitory, traders sold sending large cap equity indexes down for a second day.
WHAT YOU NEED TO KNOW:
1) Words ARE powerful! In my yesterday’s morning note I wrote that “words can be powerful” and yesterday’s market action appeared to have backed up the statement. With the great rate debate raging on, even the slightest hint of a Fed tilt in either direction can have stinging effects on markets. In recent months many traders have added a potential Fed rate cut to their bullish investment thesis as inflation has been receding and some fissures began to appear in certain economic numbers, so when the Fed chairman said that the he, meaning the Fed, believed that the inflation dip was temporary, traders took that to mean “we are not cutting interest rates”. Stocks didn’t like that.
2) Warren is a fan! The Oracle of Omaha, a.k.a Warren Buffet admitted in an after market interview that he was a fan of Amazon and referred to himself as “an idiot” for being late to the party. Berkshire Hathaway will hold its annual meeting tomorrow and we can expect to hear more. More importantly, purchases of Amazon’s stock will show up in this month’s regulatory filings as Warren is a man of his word. WHILE YOU SLEPT, shares of Amazon unsurprisingly rose in after-market and pre-market trade, a move which can impact the large cap indexes in today’s session.
3) IPO’s are a thing again. It’s too early to decide if it is good or a bad omen, but Beyond Meat, maker of meatless burgers, conducted their Initial Public Offering yesterday and more than doubled rising +163% in its first day of trading. The stock’s performance felt like a 1999-era tech IPO leaving many wondering whether it is the harbinger of things to come. The unprofitable company, which is not a tech company, is just one of several IPO’s which are due to hit markets in upcoming days. Uber, Slack, and WeWork are just a few Unicorns (private companies with greater than $1 billion valuations) who are cued up to go public in upcoming weeks. For more on Initial Public Offerings, read my note on the subject here: .
Traders, still unhappy with Powell’s comments, sold off stocks yesterday as the prospect for near-term rate cuts evaporate. Mixed, but still positive earnings combined with a strong Factory Orders number were not enough to keep equity traders from selling. Large cap indexes fell yesterday as the S&P 500 sold off by -0.21%, the Dow Jones Industrial Average traded off by -0.46%, the Russell 2000 rose by +0.4%, and NASDAQ 100 sank by -0.36%. Energy was the worst performing sector, falling by -1.7%, in response to a -2.81% drop in crude oil prices. Oil traded off on news that US oil stockpiles rose to the highest levels since September of 2017 (see chart 11 in my attached daily chartbook). Bonds, also responding to Powell’s comments, sold off causing 10 year treasury yields to climb by +4 basis points to 2.54%. The dollar index also rose for second day, climbing by +0.15% in response to… you guessed it… comments by Chairman Powell.
WHAT TO LOOK FOR TODAY:
The Bureau of Labor Statistics will take center stage today as they announce their monthly employment situation for April. Non-Farm Payrolls are expected to have grown by 190k jobs compared to last month’s 196k. The Unemployment Rate is expected to be unchanged at 3.8% and Average Hourly Earnings are expected to have grown by a year over year pace of +3.3% compared to last month’s +3.2% as the labor market continues to tighten. Later this morning Markit and ISM will release the non-manufacturing, or services, PMIs which are expected to come in at 52.9 and 57.0 respectively. It is a light earnings day with Virtu, Berkshire Hathaway, Dish, and Newell reporting before the bell, amongst others. It will be a busy day for Fed speak as we will hear from Evans, Clarida, Williams, Bowman, Bullard, Daly, Kaplan, and Mester. They will have a lot to say and traders will surely be listening. Have a great weekend.