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Morning Commentary

Powell Didnít Wreck the Market

By Charles Payne, CEO & Principal Analyst
6/14/2018 9:50 AM
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The market finished the session near the lows on Wednesday, but the action was calmer than many of the instant moves on Fed day. There wasn’t any fear - just your typical knee-jerk selling.  Investors don’t like higher interest rates, but it speaks to the strength of the economy. 

Real estate was smoked, and homebuilders were under even more pressure, but the broader market was more of a wait-and-see approach.

Yes, consumer discretionary was the best performing sector yet again.

S&P 500 Index

-0.25%

 

Consumer Discretionary (XLY)

 

+0.24%

Consumer Staples (XLP)

-0.23%

 

Energy (XLE)

-0.15%

 

Financials (XLF)

-0.18%

 

Health Care (XLV)

 

+0.06%

Industrials (XLI)

-0.69%

 

Materials (XLB)

-0.95%

 

Real Estate (XLRE)

-2.14%

 

Technology (XLK)

-0.32%

 

Utilities (XLU)

-0.06%

 
 

Cool Hand Powell

The Federal Reserve wrapped up its Federal Open Market Committee (FOMC) gathering with a unanimous decision to hike Fed Fund Rates by 25-basis points, which was expected. What wasn’t expected was a change to the so-called “dot plot” now signaling two more rate hikes this year.

Also, the removal of a sentence that had become something of a security blanket: "…is likely to remain, for some time, below levels that are expected to prevail in the longer run."

Fed Chairman Jay Powell was asked about those developments and an array of questions on other economic topics.

As for the statement edit, Powell pointed to an economy that has moved so much since he joined the Fed in 2012, especially in the “last couple of years.” In other words, this is normal stuff in a strong economy.

In fact, he was ebullient on the economy, suggesting:

Powell expressed confidence on the issue of debt, especially household levels, were all in “good shape.” 

Powell didn’t buy into the notion the Fed was going to derail potential wage growth, which has only just begun to improve. 

Finally, Powell addressed the yield curve, which dropped to an 11-year low during the session. His reply about short-term yields moving was reasonable, but I’m still not sure if he adequately addressed why the ten-year yield is slipping.

Powell Swagger

Jay Powell did his best to come across cool, calm, and collected, but the market stumbled into the close anyway.

The bottom line for me is the Fed sees the economy firing on all cylinders, and they are making common sense adjustments. The biggest risk isn’t too many rate hikes, although feckless management of rates would hurt the economy and the stock market. The biggest challenge is unwinding the balance sheet.

Meanwhile, the Fed’s economic model sees stronger Gross Domestic Product (GDP) and lower unemployment from March meeting. 

2018 Economic Forecast

Federal Reserve

June

March

GDP

2.8%

2.7%

Unemployment Rate

3.6%

3.8%

Core PCE

2.0%

1.9%

 

Millennial Swagger 

One thing that has always characterized millennials is their confidence underscored in a money survey by TD Ameritrade. Currently, millennials see themselves retiring by age 56, and 53% expect to be millionaires or already are.

Not only are millennials looking at the great golden years, but the majority also think it can be done with a new approach to work that’s actually backed up by some research.

The “Slacker Approach” involves:

1. Take a long lunch

2. Decline meeting invites

3. Turn up the tunes

4. Get out of town

5. Repeat outfits

6. Scroll through social media

7. Leave the office

I do find the gender breakdown worrisome but overall, I like the swagger of millennials, although they are going to have to give up some of the living for the moment to become millionaires in their 50s.

Millennial

Milestone Assumptions

Male

Female

Age of Retire

53

59

Become Millionaire

73%

38%

Invest in Stock Market

66%

39%

Negotiate Salary

53%

47%

                      TD Ameritrade                                                                                                                                                                                                           

 

Today’s Session

Charles V Payne ‏@cvpayne

Breaking Economic News

Retail Sales Soar

I've been pounding table telling investors to have exposure for months

Confident/wealthier consumers getting out of the house

+Department store sales increase faster than Internet

+Restaurants sales pop while grocery stores flat

#winning

Retail sales came in significantly better than expected with the prior month revised higher as well.  My tweet (above) says it all…this report reflects a confident consumer that has more money and is now leaving the house to shop and eat.

Even department stores came on strong last month with a rare outperformance over Internet growth.

Retail Sales

May 2018

M/M

Y/Y

Headline

+0.8%

+5.95

Ex-Motor

+0.9%

+6.4%

Motor

+0.5%

+4.0%

Furniture

-2.4%

+3.5%

Electronics

+0.2%

+1.9%

Building Materials

+2.4%

+5.2%

Grocery

+0.0%

+3.6%

Health and Personal Care

+0.5%

+2.9%

Gasoline

+2.0%

+17.7%

Clothing

+1.3%

+5.9%

Sporting Goods

-1.1%

-0.7%

Department Stores

+1.5%

+2.1%

Internet

+0.1%

+9.1%

Restaurants

+1.3%

+5.1%

 

Initial jobless claims for the week ending June 9 fell by 4,000 to 218,000, which was better than forecasts.  The 4-week moving average, a better gauge, dropped by 1,250 to 224,250.  The layoff rate declined for the third week in a row.  The numbers are supportive of a strong labor market and a confident work force.  Employees are willing to spend more when they are confident they have job security, as seen in the retail sales report.

Continuing unemployment claims fell by 49,000 to 1.69 million.  This is the lowest number since 1973 and points towards the possibility that these people are entering the work force. The 4-week moving average declined 3,750 to 1.72 million.    

 


Comments
So its clear that financial education is failing. How does one expect to be a millionaire or to retire at all if they don't invest in the market. I wd like to know if those who expect to never invest in the market are bullish on real estate....women 30 something percent only expect to invest in the market...I find that one of the most damming statements on US education that I have seen to date.

simone M on 6/15/2018 7:42:15 AM
 

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