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Is a Fed “Pause” Actually Good for Stocks?

What’s in Today’s Report:

  • Is a Fed “Pause” Actually Good for Stocks?

Futures are decidedly higher after Congress reached a deal to avert another government shutdown late yesterday and investors remain optimistic about trade talks between the US and China as negotiations in Beijing continue this week.

The NFIB Small Business Optimism Index fell to 101.2 vs. (E) 103 in January underscoring business owners’ uncertain outlook on the economy.

Today, there is one economic report: December JOLTS (E: 6.950M) and several Fed speakers to watch: Powell (12:45 p.m. ET), George (5:30 p.m. ET), and Mester (6:30 p.m. ET).

As long as Powell does not change his recent narrative when he speaks over the lunch hour, investors will likely remain focused on additional updates regarding the new funding deal lawmakers agreed to late Monday and more importantly, the ongoing trade talks in Beijing.

Tom Essaye Quoted in Barron’s

Tom Essaye Quoted in Barron’s on February 6, 2019.

“Futures are slightly lower as Trump’s SOTU was a non-event for markets…” Read the full article here.

Sectors to Buy If This is A ’15/’16 Repeat

Today’s Report is attached as a PDF.

What’s in Today’s Report:

  • What Sectors to Buy If This Is a ‘15/’16 Repeat
  • Why Are Global Central Banks Turning Dovish? (And Is It A Good Thing?)
  • What’s Next for Oil

Futures are moderately weaker as concerns about global growth rise following more weak EU economic data.

German Industrial Production badly missed estimates, falling –0.4% vs. (E) 0.8%, while the European Commission cut 2019 expected EU GDP to 1.3% from 1.9%.

The Reserve Bank of India surprisingly cut rates over night and is now the second large central bank to give markets a dovish surprise (after the RBA on Wednesday).

Today focus will remain on economic data and Fed speak, as we get Jobless Claims (E: 223K), Consumer Credit ($17.5B) and comments by dovish Fed Governor Bullard at 7:30 p.m. ET.  If the news is generally dollar bullish and we see a further rise in the dollar, that might weigh on stocks more as a weaker dollar is needed to help boost corporate earnings going forward.

FOMC Preview

What’s in Today’s Report:

  • FOMC Preview

U.S. equity futures are little changed this morning after a generally quiet night as investors focus turns to the Fed.

Late yesterday, the DOJ officially accused Huawei with financial fraud, stealing trade secrets, and sanctions violations and formally requested the extradition of the CFO from Canada which mildly pressured stock futures o/n.

Today, there are two, second tiered economic reports due to be released: S&P Case-Shiller HPI (E: 0.4%) and Consumer Confidence (E: 124.6), and the FOMC meeting begins which will likely bring a sense of “Fed paralysis” over the markets.

Earnings season remains in full swing and there are a few notable corporate releases on the calendar today: VZ ($1.09), MMM ($2.27), PFE ($0.63), AAPL ($4.17), AMD ($0.09), EBAY ($0.68).

If earnings are generally in-line (especially AAPL after the close) then the market will likely remain fairly choppy into tomorrow’s Fed Announcement and Powell’s press conference.

Technical Market Update

What’s in Today’s Report:

  • Technical Market Update
  • Two Events to Decide the Year
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet (All About Inflation This Week)

Futures are surging and global markets are up 1% thanks to apparent progress on the EU/Italy budget standoff.

Italian deputy PM Salvini said over the weekend that Italy wasn’t “stuck” on the 2.4% budget deficit, adding to the momentum that a compromise might be achieved.

Economic reports overnight were again disappointing.  Japanese flash manufacturing PMI missed estimates (51.8 vs. (E) 53.0), as did German IFO business expectation (98.7 vs. (E) 99.2.

There are no notable economic reports or Fed speakers today, so focus will remain on the tech sector.  Tech traded with some decent relative strength Friday, and if it can build on that today, then we could see a good bounce back rally.  Conversely, if tech fails to rally, then so too will the boarder markets.

Why Stocks Dropped (Again)

What’s in Today’s Report:

  • Why Stocks Dropped Yesterday
  • More Housing Trouble?
  • Are “Gassy” MLPs a Buy?

Futures are moderately lower on momentum as Monday’s U.S market declines spilled over globally and international weakness is now weighing on futures.

Economically it was another quiet night as German PPI met expectations at 3.3% while UK Industrial Trends were better than expected (10 vs. (E) -5).

There was no new news on the Fed or U.S./China trade although expectations are rising for a Trump/Xi “truce” at the G-20 and a more dovish tone from the Fed.

Today will be another quiet day, at least based on the calendar, as we have no Fed speakers and just one economic number: Housing Starts (E: 1.24M).   Given that, focus will remain on tech and the super cap names specifically.  FDN needs to stabilize and bounce to help arrest this short term sell off and that ETF is now at the top of my quote screen, as it’s driving the markets in the very short term.

A Disconcerting ERP Update

What’s in Today’s Report:

  • Equity Risk Premium: A Disconcerting Statistic

Futures are bouncing modestly after yesterday’s steep equity selloff as Secretary Mnuchin reportedly resumed talks with Chinese officials regarding trade but the budget drama between Italy and the EU remains a headwind.

Economically, the German ZEW Survey missed (badly): 58.2 vs. (E) 65.0 while the NFIB Small Business Optimism Index was more inline: 107.4 vs. (E) 108.0, underscoring the ongoing divergence between US and overseas data right now.

Looking ahead to today’s Wall Street session, there are no other economic reports to watch and only one of the two Fed speakers is during market hours: Kashkari (10:00 a.m. ET), Daly (5:00 p.m. ET).

Most of the more notable catalysts this week will come tomorrow (U.S. CPI, Chinese economic data, Powell speaks, earnings, etc.) but that doesn’t mean that downward momentum that began yesterday can’t continue so support in the S&P between 2705 and 2720 will be important to watch today.

Why the October Sell Off Was Different

What’s in Today’s Report:

  • Why The October Sell Off Was Different
  • Valuation Update (the market is fairly valued here)

Futures are moderately lower following more disappointing Chinese economic data.

Chinese auto sales plunged 12% yoy in November and annual car sales growth turned negative for the first time since the early 1990’s, further fanning fears of a Chinese economic slowdown.

Earnings results were mixed as DIS posted solid numbers while EU corporate earnings were disappointing.

Today focus will be on inflation via PPI (E: 0.2%) and it needs to remain “Goldilocks” so as to not put more downward pressure on stocks.  We also have several Fed speakers (Williams (8:30 a.m. ET), Harker (8:50 a.m. ET), Quarles (9:00 a.m. ET)) although the next big Fed event will be Fed Chair Powell speaking on Tuesday.

Election Takeaways & FOMC Preview

What’s in Today’s Report:

  • Election Takeaways (Short and Longer Term Implications)
  • FOMC Preview – All About the Fed Put
  • A Seasonal Pattern That’s Worked 100% of the Time

Futures are modestly higher on a relief rally as the U.S. mid-term elections provided no surprises.

As was widely expected, Democrats gained a small majority in the House of Representatives, while the Republicans expanded their majority in the Senate.

Economically, data from Europe was good as German Industrial Production (0.2% vs. (E) -0.1%) and Euro Zone Retail Sales (0.1% vs. (E) 0.0%) both beat estimates.

Today focus will be on the FOMC Decision (2:00 p.m. EST, E: No Change to Rates) and the key will be whether the Fed mentions recent stock market volatility.  If they do, that will be taken as a slightly dovish shift, and it likely will help extend today’s early rally.

Trade War Indicator

What’s in Today’s Report:

  • A Realtime Trade-War Indicator to Watch

Futures are slightly lower with EU markets this morning on renewed political tensions despite upbeat economic data o/n while US focus turns ahead to the mid-terms.

Italian shares are down nearly 1% as the revised budget due on 11/13 is not expected to have the improvements investors previously hoped which could lead to further tensions with the EU.

Economically, the EU Composite PMI came in better than expected (53.1 vs. E: 52.7) which is a longer term positive as we need to see overseas data “catch up” to US growth metrics to help fuel continued gains in stocks broadly.

Today, trader focus is going to primarily be on the mid-term elections although results will not come in until after the close.

On the economic front, there is just one report to watch: September JOLTS (E: 7.110M) while there are no Fed officials schedules to speak ahead of the two-day Fed meeting that begins tomorrow.

Lastly, markets will remain sensitive to any trade war developments while technicals are still playing a major role in intraday price swings so if momentum is generated back towards 2700, the odds of another ugly break to the mid $2600’s would rise significantly.