It was another day of wild gyrations on Thursday as investors dealt with a combination of good news and increasing anxieties. Bond yields continue to edge higher, and the Street is grappling with the notion of the Fed becoming more aggressive than advertised coming into 2018.

The major indices were mixed:

• Dow: +37
• S&P  500: -1.8
• NASDAQ: -25.6

The Russell 2000 found buyers at a critical support point, holding the trend line that began when the index rebounded off a double bottom. It’s been a curious time for the Russell 2000 Index, which is what many consider the best proxy for the domestic economy. The index is also loaded with a lot of biotech stocks that have been hot, too. 

RUT

The Economy

Earnings are coming in very strong and guidance while typically cautious bodes well for the market and speaks to a strong underlying economy.

Another round of strong economic numbers in manufacturing and construction got the folks at the Atlanta Fed to hike their first-quarter Gross Domestic Product (GDP) estimate to 5.4% from 4.2%. This would be remarkable as the fourth-quarter 2017 has been revised closer to 3.0%.

The U.S. economy has only pierced 5% in two quarters since the onset of the Great Recession. This is certainly shaping up to be the best string of quarterly GDP numbers in a long time.

 

State of the Consumer

Yesterday, Lowe’s (LOW) joined the chorus of companies doling out goodies because of tax cuts, and a lot of that cash will go straight into the economy. 

Before the open, MasterCard (MA) posted strong results, in part to the continued use of credit cards in the United States. I understand that some see this as a red flag, but I think it’s a gauge of confidence at the moment. Back in 2005, credit card usage outpaced debit cards by a 160% margin, but the Great Recession got people to spend what they had in the bank, sending debit card usage ahead. 

That lead is narrowing, as folks are earning more and have more faith in the economy, which also means that folks are buying bigger-ticket items.

Speaking of big-ticket items; after the bell, Apple (AAPL) posted its results: $88.3 billion revenue and $3.89 earnings per share, both better than expected. 

Although iPhone sales of 77 million were short of consensus, the average selling price of $796 was more than a $100 above a year ago, and much better than analysts anticipated. 

It seems as though folks are forking over $1,000 for those iPhone X Smartphones.

Also, after the bell, Amazon (AMZN) blew away the Street with $60.4 billion in revenue, +38% year-over-year. The stock took a $50 hit during the session, but there is a great chance the stock will make that up today. 

Finally, speaking of the consumer, shares of Deckers Outdoor Corp (DECK) surged after posting earnings that blew away the Street as well.

Today’s Session

The January jobs report came in well above consensus at 200,000 paced by construction +36,000 and education and health +38,000. 

The big headline is the spike in wages, which climbed 2.9%, year over year, the fastest pace in more than eight years.  Wall Street mavens are squawking about inflation and bond yields, while Main Street is looking to the heavens and saying thank you. 

The market will open under pressure, which is fine with me; I have been looking for value, and this will create easy buying opportunities.  Meanwhile, this is very good news for the economy, which is very good news for the stock market longer term.  

One could argue the market saw this strength coming, so this is just selling on the news.  I have no problem with that kind of thinking, but investors shouldn’t get sidetracked by this kind of Wall Street action. 

 

Comments

Charles...could you give a clearer understanding to us lay investors on why the equities market sells off so dramatically when bond prices begin edging up....even soar? Much appreciated, as I wish to be able to not only tell some of my fellow investors of your analysis, but also understand this phenomenon better, myself. Thank you in advance. James Warlin on 2/2/2018 1:00:05 PM

Like the show. 1. seems main problem with interest increase (and spending limits) is the 20T debt - why not put a small tax dedicated to paying off the debt on oil exports- small but untouchable by US government agencies- except for that purpose of paying down the National Debt. Kind of like a toll- once paid - the tax ends. Could be small but that way over time our own natural resources of petroleum and natural gas pay for the debt retirement. Let's face it what is holding us back is the debt and the growing interest on it. Nobody would care about infrastructure spending if the debt wasn't so high. 2. Wall could be paid in the same way- very small tax on money sent to Mexico and South America by individuals in the US. Acts like a toll. Once wall paid for - it disappears and it dedicated to only paying for the wall. It is a trust fund that really acts like a trust fund! (Mexico really could pay for the wall!) steve tiller on 2/2/2018 7:02:40 PM

I like the idea of a small one way fee applied to exports of certain energy products and money grams sent to Mexico. Great way to pay for the "wall" and pay off the national debt. Republicans should take note. This would be difficult for the Dems to push back on. Jim R on 2/2/2018 9:27:07 PM

Your and Jim R’s comments were spot on with great insights regarding paying for the wall and reducing the national debt. As said, even the Dems couldn’t put up much fight against this, although I’m sure they would find something to be unhappy about. Rick G. on 2/3/2018 7:06:59 AM

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