MR. POWELL'S WILD RIDE

Stocks gapped up at the open during Fed Chair Jerome Powell’s congressional testimony this morning. The Dow is currently up 78 pts and the SPX is up .33%. But don’t expect the rally to last—and make no mistake, earnings season will trump any Fed rate cut in terms of influencing the direction of the stock market. At the moment, most sectors are in the green, led by energy and tech. Financials are down along with interest rates today. Crude oil, copper and gold are all up. WTI crude jumped 3% to trade around $59.50/barrel, right around the 2-month high. Bonds are rallying after Mr. Powell hinted at a rate cut (see below). The 10-year Treasury yield dipped to 2.04%.

This morning, Mr. Powell hinted that the Fed is poised to cut interest rates. “Crosscurrents have reemerged,” he said, and “many FOMC participants saw that the case for a somewhat more accommodative monetary policy had strengthened.” He blamed “uncertainties around trade tensions and concerns about the strength of the global economy…” He also noted that wage growth (and overall inflation) have decelerated this year. According to CNBC, bond traders now expect two .25% interest rate cuts by the end of the year. Stock market futures soared on these comments, bonds rallied, and bank stocks fell.

CNBC’s Jim Cramer said those who are trading on Fed rate cut expectations are playing a “stupid parlor game.” That sounds about right. In a recent interview, BMO Capital’s Brian Belski said that during “No other time in my 30 year career have portfolio managers had such a short-term [view] with respect to…positions in their portfolio.” In other words, too many are spending too much time trying to manage rhetoric and events rather than focusing on the long-term fundamentals. The result is a spike in short-term trade volume and sector rotations aimed at gaming global trade policy, or Fed policy expectations.

According to Bloomberg’s survey of Wall Street analysts, second quarter earnings for S&P 500 companies probably fell about 16% from year-ago levels. Aggregate sales growth likely slowed to just below 2%. Next week earnings season kicks off with announcements by JP Morgan, Wells Fargo, and Johnson & Johnson.


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