Press "Enter" to skip to content

Tag: interest rates

Big Week Ahead: Earnings, GDP, Fed Interest Rate Decision

Published July 25, 2022

The following is an amended form of the July 25 Daily Contrarian. This briefing and accompanying podcast are released to premium subscribers each market day morning by 0700. To subscribe, visit our Substack.

We are staring at a three-headed beast this week: Earnings, the Federal Reserve’s interest rate decision, and economic data.

Three-headed beast. Promo image for the original Showa iteration of King Ghidorah. Source: Toho Co via Wiki
Promo image for the original Showa iteration of King Ghidorah.
Source: Toho Co via Wiki

The Fed interest rate decision is Wednesday. Second-quarter GDP is Thursday. The most important economic data release isn’t until Friday with the Personal Consumption Expenditures, aka the Fed’s preferred inflation gauge.

The FOMC and Q2 GDP will get the lion’s share of attention. Both could turn out to be non-events. GDP is a trailing indicator and anyway this is just the first estimate of Q2 GDP. Yeah if it prints negative that will be two consecutive quarters, which technically means we were/are in recession, blah blah. Doesn’t change the fact that this tells us something which has already happened. As such it is unlikely to move markets very much.

MoreBig Week Ahead: Earnings, GDP, Fed Interest Rate Decision
Leave a Comment

Fed Certainty, Not Earnings, Drove Stocks Rally

Published July 20, 2022

The following is an amended form of the Daily Contrarian briefing from July 20. This briefing and accompanying podcast are released to premium subscribers each market day morning by 0700. To subscribe, visit our Substack.

Stocks put in a major rally yesterday. The Nasdaq gained more than 3% on the day and S&P 500 was up 2.8%.

The bounce is being attributed to earnings, but most of these were not that great and several companies also scaled back their outlook for the rest of the year. Then there was Netflix (NFLX), which rallied after hours despite announcing a loss of almost 1 million subscribers. The stock rallied because it had previously predicted a loss of 2 million. (Note to streaming companies: Just predict a huge loss of subscribers, more than twice what is likely then sit back and watch your stock rally).

Remember that markets hate uncertainty more than they hate bad news. The Federal Open Market Committee, or FOMC, meets next week to decide on interest rates. Talks of a 1% rate hike that spooked markets after last week’s inflation reading have given way to the far more likely reality of a 0.75% hike — and that is now being accepted as gospel. The source for this appears to be a speech by Fed governor Chris Waller, which has led the Wall Street Journal to all but declare the 1% hike to be off the table.

MoreFed Certainty, Not Earnings, Drove Stocks Rally
Leave a Comment

The Yield Curve Inverteth

Published July 5, 2022

The following is an amended form of the Daily Contrarian briefing from July 5. This briefing and accompanying podcast are released to premium subscribers each market day morning by 0700. To subscribe, visit our Substack.

The yield-curve between the 2-year and 10-year just inverted. What this means is the shorter-dated yield (the 2-year in this instance) is actually higher than the longer-dated one (the 10-year). To be specific, the 2-year yield is currently 2.81% while the 10-year is 2.80%.

So there you have it. It’s not the first time this has happened this cycle. In fact, the 2/10 curve inverted as recently as June 14. Also in March. This is one recession predictor that is deemed to be pretty accurate for reasons that are discussed in this Investopedia article.

This yield curve inversion gives us something to talk about today, as things are still mostly quiet after the long holiday weekend. Most of the action this week is back-loaded, with the June jobs report due on Friday.

Markets got some good news around easing of China tariffs over the weekend, but the mood is mostly pretty dour. CNBC reports the outlook for the second half is “not looking good.” A contrarian indicator? Maybe. Or maybe it just isn’t a good idea to fight the Fed?

Meme captioned by author

Americans have apparently started tapping into their savings to cope with inflation. That’s not good, but there is a ready-made boogey man in the Federal Reserve. Lest we forget: the Fed insisted the inflation we were seeing last year was transitory. They’ve changed their tune on this, but the point is they don’t have political leeway to reverse course again — until inflation is well and truly under control (or they have some data to point to that will allow them to ‘declare victory’).

Whatever your views on all this, the truth is nobody has any idea what is going to happen. There are educated guesses but there are also people with a vested interest in pushing a specific narrative. Do your own research, make your own decisions.

Leave a Comment