AWAITING THE FED

Stocks opened slightly higher this morning but quickly faded. The Dow is currently down 38 pts and the SPX is up .18%. The tech sector surged 1% in early trading, led by semiconductor stocks. In addition, biotechs and transports are modestly higher. Most everything else, however, is in the red. The Dow is now up about 18% this year, and investors are scrutinizing earnings reports to see if the growth outlook will support further stock market gains (see below). The VIX Index—a common measure of fear among traders—is hovering around 14, considered fairly low. And strangely enough, surveys by the American Assn. of Individual Investors (AAII) show improving sentiment among non-professional investors. Taken together, we can conclude that people feel fairly good about the market. Commodities are mixed today. Iran’s geopolitical tantrum is propping up oil prices (WTI crude back up over $56/barrel). But copper and iron ore are lower in price. Bonds are mostly higher in early trading. The 10-year Treasury Note yield fell back to 2.03% today. Long-term Treasury bond funds, such as iShares 20+ Year Treasury Bond ETF (TLT) is up nearly .5%.

After some better than expected economic reports this month, traders are paring back bets on how deeply the Federal Reserve will cut interest rates in coming months. Currently, there is roughly 75% chance that the Fed announces a .25% cut this month. And according to Bloomberg, the futures market is predicting cuts totaling 1.0% over the next year. The stock market, of course, has been pricing in lower rates over the last 6 weeks. And President Trump is loudly calling for deeper interest rate cuts in order to keep this economic expansion alive. The Fed’s next policy meeting is scheduled for next week.

Chinese news media reports US and Chinese negotiators may resume face-to-face meetings soon. The Chinese government is hinting at increasing purchases of American agricultural products in order to progress toward a trade deal. But they are not talking about halting the wholesale theft of intellectual property.

So far this earnings season, about 80 of the S&P 500 companies have reports quarterly results. About 60% of those beat Wall Street sales forecasts, and about 78% have beaten profit expectations. Those are pretty good numbers.


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