However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.
-Federal Reserve Statement, January 27, 2016
Janet Yellen went ‘Old Gangster’ (OG) on the markets Wednesday when she and her posse hit the Street with your typical Fed-speak ramblings and enough clarity to say we are out of our minds. While there were zero expectations that the Fed would take any action, there was a lot of hope that the Fed would speak to the economy and the notion of things on the upswing. Of course, that notion belies the mixed bag of economic data that this is the worst post-recession recovery ever.
However, with that as the backdrop, historic norms and rules on things such as elasticity will come under question.
It wasn’t that long ago when the Atlanta Fed saw the fourth quarter Gross Domestic Product( GDP) inching towards 3.0%, and now it’s at 0.7% after a couple of positive economic releases stopped its freefall at 0.6%. More than likely, there will not be any negative growth for the quarter, but just the fact that it’s in the conversation is worrisome.
Still, the Fed came out yesterday and burst the balloons of those hoping for a dollop of honesty and clarity. It didn’t happen. The closest the Fed had come to honesty and clarity was acknowledging the markets not as proxies, but as a risk to our otherwise wonderful recovery. I get that the Fed has no bullets left in its chamber, even though some experts insist there are ways they could be creative.
The fed has zero credibility and doesn’t want to be seen as being pushed around by Wall Street at the expense of Main Street woes and uncertainty. Here are the big issues that spooked the Street, which initially cheered about comments on the market, but became crestfallen as the rest of the statement was read and digested.
Recommended
- March rate hike still on the table
- Not worried about recent soft data in the fourth quarter
- Still thinks inflation kicks in to 2%
It’s true that Wall Street flew into a typical hissy fit with the sell-off, but what’s also true is that the Federal Reserve is too wedded to a plan, even as they suggest that its data will dictate future decision-making. They blew it; and now they are too vested in not looking dumb to come to the rescue of markets. It’s not a good look; from here on out, Yellen will never look like a pushover.
Bright Spot
Housing is looking more and more like a bright spot in the economy. New home sales soared and even if it was helped by warm weather, it shows that there are buyers.
Mortgage applications to purchase homes are gaining traction as single-family homes sold more, noticeably off historic lows.
Conclusion
Despite a few glimpses of better economic tidings here and there, the Fed has blown numerous opportunities to justify its role and the risk it brings to Main Street. I don’t think we will close the Fed anytime soon, but they must get back to its stated mission of jobs (full-time, not part-time) and inflation, the (old-fashioned kind that begins with higher paychecks).
Earnings
There was an avalanche of earnings after the bell; for the most part, most came in ahead of consensus. We’re looking deeper, but it is ranked by the market cap, the beats, and initial reactions.
FB |
+12% |
TXN |
+4% |
PYPL |
+5% |
LVS |
+2% |
SNDK |
+1% |
UA |
+1% |
MLNX |
+8% |
CRUS |
+1% |
United Rentals (URI) -11% is a favorite company of mine; I have to take a deeper look into it. A lot will change with conference calls and broad market action, but earnings this week sans Apple (AAPL) and Boeing (BA) have been pretty good. Still, I am not sure that it’s enough to lead a market fixated on other issues; in the end, earnings dictate the share price.
Today’s Session
It’s all about earnings with Facebook, a juggernaut, but also a major rebound in Under Armor, Caterpillar and Harley. Numbers from Alibaba saw mobile monthly average users grow by 47 million to 393 million as its retail user base climbed 21 million to 407 million. Those developments hunt the Chinese consumer, not as dead as advertised.
On the flip side, durable goods were a disaster – I will go into greater detail in the afternoon note.
Join the conversation as a VIP Member