Yesterday, the Fed left gave us more questions than answers, but after vacillating, investors think that the good times will be here for a little longer, pushing all major indices into the plus column. Still, the Fed is looking for a big second half for the economy, and they may also be looking for excuses not to hike before the election.

The Federal Open Market Committee (FOMC) Minutes:

• Conditions could soon warrant a rate hike
• Low interest rate environment could lead to the misallocation of capital and mispricing of risk, with adverse consequences for financial stability
• The world is worrisome: bad loans in Europe, China’s foreign exchange policy and the massive debt is needed to support its economy (pot, meet kettle), and the British exit
• Inflation target of 2% might have to be reconsidered

I predicted that the current quarter will see a Gross Domestic Product (GDP) print of 3.5%, which will trigger cries of foul from the political right as the timing of such news would be great for Hillary Clinton.   As it stands right now, the Atlanta Fed, which has a great track record for calling the GDP, is modeling for a 3.6% growth.

 

Date	Major Releases	GDP	PCE
3-Aug	Initial	3.6	3.6
4-Aug	M3 Manufacturing report	3.7	3.7
5-Aug	Employment situation, Foreign trade	3.8	3.7
11-Aug	Import/Export prices	3.7	3.7
12-Aug	Retail trade	3.5	3.4
16-Aug	Ind. Prod., CPI, Housing starts	3.6	3.5

Economic Slumber

You have to go back to the third quarter 2014 (3Q14) for the last time the economy grew at more than 2.6%.  However, it doesn’t feel like the economy is growing at 3.5% or better right now.  If that’s the case, it changes the dynamics of the market and maybe even the election.

Meanwhile, yesterday’s stock market session was weighed down after disappointing earnings from big retailers such as Lowe’s (LOW) and Target (TGT). While both stores were proxies for the economy, they also became major victims of the Internet.  On the other hand, Urban Outfitters (URBN) and Children’s Place (PLCE) have been soaring on stronger earnings results.  

The Catalyst?

Oil continues to edge higher, getting a bump from a greater-than-expected crude drawdown in the latest release from the U.S. Energy Information Administration (EIA). Crude at $50.00 would have a magically positive impact on the stock market, it could happen next week with continued signs of better demand.

Today’s Session

Today’s Philly Fed report on manufacturing underscores just how much the next six months needs a major improvement from current economic conditions. Two of the most critical components of the report literally crashed as new orders cratered significantly and employment slumped to its lowest point since July 2009.

Major assumptions about the next six months by businesses, and the Fed, means the rally will be on borrowed time if a clear shift doesn’t occur.

Manufacturing Hope?	Current	Future
Conditions	+2.0	+45.8

Manufacturing Hope?	Current	Future
New Orders	-7%	+45%
Increase	27%	56%
Decrease	34%	11%

Manufacturing Hope?	Current	Future
Employment	-20%	+13%
Increase	5%	27%
Decrease	25%	14

Comments

They will do nothing until after the election! They are totally in for HRC and the good ole gang of collusive incompetent Political insiders. Garro on 8/18/2016 10:10:41 AM

Could not say it better. The last seven years have been testimony to the fed supporting the current administration Begs on 8/18/2016 10:27:28 AM

With the global buying of US bonds due to negative interest rates, for the Fed to raise rates will make the dollar rally and crush multinationals earnings. That is why the market is so hyper regarding this. They get how weak we are now. Regardless of the GDP number coming up, everything depends on the middle regarding the election. Obamacare is imploding. Will they accept the argument that it is ALL the insurance companies fault. Will they buy that all the ills of jobs and the economy are due to the rich and greedy and corporations or will they actually smell the truth and potential of what kind of growth we could have if we actually fixed our tax and fiscal policies with dare I say it - INCENTIVES! We can only hope. Ray Weldon on 8/18/2016 10:52:23 AM

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