Indexes fell Wednesday after traders were saddened the Federal Reserve was not prepared to inject another round of gasoline into markets via an interest rate hike, but rallied Friday after employment data came in at a solid level. Aside from that, a ton of earnings hit.
In a unanimous vote, the Fed kept its benchmark interest rate in a range of 2.25% to 2.5%. Senior officials sounded more upbeat about the economy after a slow start in early 2019 and pointed to a recent decline in inflation as reasons to stand pat. Federal Reserve Chairman Jerome Powell acknowledged a slowdown in business and household spending, but described low inflation as “transitory” and denied there was a “strong case” to expect an interest-rate cut in the near term.
“The feature out of this meeting for investors is the Fed’s economic outlook, which highlights ‘sustained expansion of economic activity’ balanced with a soft global economic picture and “muted inflation pressures,” wrote Jason Pride, chief investment officer of private wealth at Glenmede. “With the U.S. economy at or near full employment, the expectation for future rate changes will essentially be a referendum on inflation, which has remained habitually below the Fed’s 2% target this cycle,” he said.
On the economic front, the ISM manufacturing index came in at 52.8, well below expectations of 54.7, and below the March reading of 55.3. ISM services came in at 55.5, representing the lowest read since August 2017. Economists had expected a reading of 56.1.
The April jobs report produced a stronger-than-expected 263,000 new jobs, helping to drive down the unemployment rate to a 49-year low of 3.6%, topping economists’ estimates of 217,000. The decline in April stemmed from nearly a half million workers dropping out of the labor force. The average wage paid to American workers rose 6 cents, or 0.2%, to $27.77 an hour.
For the week, the S&P 500 gained 0.2% and the NASDAQ 0.2% – that is the 6th straight up week for the NASDAQ.
Here is the 5 day weekly intraday chart of the S&P 500 … via Jill Mislinski.
The week ahead…
Futures are down overnight ahead of the Monday open (and China’s market was down severely) as a Trump tweet on the U.S.-China trade agreement set people off. At this point people are trying to find anything minor to get worried about as complacency has set in. We will see how long this matters.
In a surprise pair of tweets early late Sunday, Trump expressed frustration with the speed of talks with China, and threatened to raise tariffs on $200 billion of Chinese goods by Friday of this week to 25% from 10%. “The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!” he wrote.
Trade negotiations were set to resume this week between the two countries and last week U.S. officials had seemed hopeful a deal was imminent. Beijing, which has in the past rejected pressure tactics from the U.S., said Vice-Premier Liu He’s planned trip to Washington this week could be canceled altogether, according to a report in the South China Morning Post, citing sources.
Earnings season continues as well.
Short term: The S&P 500 and NASDAQ both spent the week wrestling with all time highs territory.
The Russell 2000 has been stuck in a range really since February – finally Friday a big up day.
The NYSE McClellan Oscillator stayed red all week til Friday – these divergences are always interesting especially after such a long rally. Didn’t matter too much in March as the market mostly ignored this indicator.
Long term: Things are definitely looking up again.
Charts of interest / Big Movers:
Tuesday, Alphabet (i.e. Google) (GOOG) fell 8.4%, after its results late Monday showed revenue growth cooled off in the first quarter, with all major sales categories performing slightly worse than projected.
Wednesday, Apple (AAPL) gained 4.9% after the company reported another fall in profit and revenue, but beat expectations for first-quarter performance. Moreover, Apple signaled that the worst is over for its China business, and did report momentum in its services businesses, which stock bulls see as key to the company’s growth.
All the attention is on technology stock IPOs but the best new issuance in years was Beyond Meat (BYND) which hit the market Thursday. This is a very interesting space with 2 major competitors in Beyond Meat and Impossible Burger – the latter of which is going to be rolled out at Burger King nationwide. Personally I think this is a monster size market that is in nascent age – but the market unfortunately agreed. Beyond Meat opened at $46, 84% above the $25 initial public offering price. Shares in the plant-based meat maker continued to rise thereafter, closing up more than 163%, at $65.75 per share. The company is now already at 17x sales!
Square (SQ) slid 8% Thursday, after the company reported Wednesday evening that payment volume in the first quarter fell short of analysts estimates, even as the company surpassed earnings and revenue forecasts.
Have a great week and we’ll see you back here Sunday!