It was an impressive session even before the Federal Reserve wrapped up its Federal Open Market Committee ( FOMC) gathering, leaving rates at 0.25 – 0.50% and slightly altering its statement.  Janet Yellen and company are doing a whole lot of monitoring, but they removed language about global events posing risks to its outlook.  Overall, the comments felt more dovish, even though many observers think the Fed left the rate hike door open for possible action in June.

I don’t subscribe to that theory in part, because it presupposes the Fed would be eager to get a hike under their belt this year, and ahead of the drama in Europe as the United Kingdom goes to vote on leaving the European Union.  I think the Fed cares a lot more about the implications months ahead of an American election for the White House than influencing what happens in Europe.  Mostly, I am skeptical because the Federal Reserve admits the economy is sluggish.

FOMC Statement Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

Limping out of First Quarter

I have chronicled the precipitous free-fall in the Gross Domestic Product (GDP) forecast at the Atlanta Federal Reserve that it once modeled for 2.7% growth, but it now sees 0.6%; it’s up from a lower estimate two weeks ago. It’s unlikely that data will be strong enough and sustained long enough to give the Fed confidence for a rate hike until late summer (early fall at best), and that brings up that conundrum about hiking in the thick of a presidential election.

The bottom line is the market might get to have its cake and eat it too.  Slow growth marked by periodic spurts in wages but it's nothing strong enough to move the inflation needle or spring the Fed into action.

While the headline for the session was of the resolve in the equity market, there was an eclectic aspect to the day as well.

• Bond yields were lower
• Gold was higher
• Energy sector rallied
• Utilities rallied

This market wants to go higher, but it also wants to stay in a foxhole.  It’s clear to me that it needs leadership to go along with the all clear it got from the Federal Reserve yesterday.

Perhaps that leadership comes from Facebook (FB), which posted amazing results.  Revenues came in at $5.4 billion and earnings at $0.72, both well above consensus.

1.65 billion Monthly users of which 66% check in every single day.

So, tech has leadership this morning but defensive investors will probably feel great today after shares of defense contractors popped big yesterday.

The market has been filled with sound and fury; while it’s just about where it was at the start of the year, this has been one of the more eventful years in a long time.

Today’s Session

Wall Street starts the session with a tall glass of whine as the Bank of Japan decides against any additional action for the moment, despite the dire economic malaise that has haunted the nation for decades.  Maybe, their central bank chief, Kuroda, figured if the solution isn’t working after being applied so for so long; maybe it’s not the solution.  Maybe, the old ghosts of samurai warriors of the past influenced his will.  Or maybe, the BOJ is being too cute as central banks can be from time to time.

Whatever the reason, the street was looking for more stimulus and got nothing.

Meanwhile, the first quarter GDP number for America has come in mushy.  At 0.5%, it’s well below consensus of 0.9% which of course wasn’t a robust number to begin with.   Some will chalk this up to just another dud first quarter that is part of a new paradigm that has more to do with seasonality than a proxy for the economy.

I call BS on that notion.

The number didn’t move the needle and there are additional economic reports out this morning that we’re combing through as well.

The struggles this week underscore a need for consistency as well as clarity.

 

Comments

Agree FB impressive growth...well run Co...as to the beat i've not heard 1 talking head refer to the reduction of assumed tax rate from 36% to 27% thereby producing the EPS "beat"...fantasy math continues from the Street...time for SEC to mandate only GAAP non adjusted numbers RLB on 4/28/2016 10:00:44 AM

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