Well, what a difference a day makes. Initially, concerned and a tad bit confused, Wall Street came around to embracing the new Federal Reserve. The ‘Powell Fed’ might be ready to embark on a strange journey that eventually sees negative interest rates in the United States.I don’t want to get too far afield, but if the Fed only sees one rate hike over the next two years, then what happens if the economy or stock market hits a bump in the road?

That bump is probably a long way off, but the notion is food for thought. Meanwhile, the market is edging closer to major indices retesting their all-time high points, particularly the NASDAQ Composite. The NASDAQ would only need three more sessions like yesterday, when shares popped more than 100 points. This is a parabolic move that could feed on itself, as lots of folks that missed the train leaving the station decide to chase it down the tracks.

Skills Crisis

In yesterday’s Philly Fed release, a special questionnaire revealed the depth of the skills gap. I get that many people believe this is an urban myth. However, with a record of 7.6 million job openings, employers are frustrated and are ready to try anything. That’s great news for Americans that have been hoping for a chance at the dignity of a paycheck.

Issues:

Long vacancies due to the labor shortage

1. Has your firm experienced any significant labor shortages or mismatches between labor skill requirements and labor supply?*	2019 (%)	2018 (%)
Labor shortages	73.6	63.8
Skills mismatches	66.0	69.6
Job vacancies remaining more than three months	50.9	47.8

 

2. Is your firm experiencing a labor shortage in general or in certain skills, abilities, or positions?	2019 (%)	2018 (%)
We are seeing a tightening labor market, such that it is getting harder to fill positions in general, but still possible to fill them.	47.2	35.3

Novel Solutions and better training

3. What actions has your firm taken to address skills shortages?*	2019 (%)	2018 (%)
Increased training for hired workers**	43.4	-
Partnered with educational institution to align curriculum with talent needs	41.5	34.8
Expanded recruitment outside the region	32.1	24.6
Hired less qualified workers to meet labor requirements**	30.2	-

This is serious issue, but. what a high-end problem to have. I think businesses are going to have to do more to make sure they have the workers. While it shouldn’t come down to one or the other, this is certainly a better investment than massive buybacks and higher dividends.

The operative word is “investment.”

Today’s Session

Big Dow names, Boeing and Nike are under pressure this morning.  

Boeing (BA)

Flag carrier Garuda Indonesia is looking to cancel its $6 billion order for 49 Boeing 737 Max jets. Garuda is the first airline to formally announce its plans to cancel a 737 MAX order.

Boeing 737 Max planes have been grounded after two recent fatal crashes.

Garuda spokesman, Ikhsan Rosan, said the airline sent a letter to Kevin McAllister, head of Boeing’s commercial plane division on March 14 “to say that we want to cancel.” According to Rosen, the decision to cancel "is in line with the desires of consumers who have lost confidence in the Boeing 737 MAX 8."

Garuda has not heard back from Boeing, but the aircraft manufacturer will visit Jakarta on March 28 for "further discussion," said Rosan.  Garuda Indonesia said Friday it may change its 737 Max order to another type of Boeing jet.

According to the New York times, Boeing sold two essential safety features that may have been able to detect in advance as extras on the 737 Max.  One of the features, was “angle of attack” sensor, which the company will continue to charge for.  However, Boeing is going to include the disagree light as a standard feature.  Boeing is planning to have a software update for the planes available in April.

Nike (NKE)

Nike’s earnings per share surpassed analysts’ expectations, and its revenues were In-line with their estimate. However, its North American revenue fell short of consensus. The company blamed the miss on delays in new launches.  

In the third quarter, sales grew 7% year-over-year to $9.61 billion, driven by double-digit growth in the footwear and apparel categories. Nike saw double-digit currency-neutral growth in international markets, and high-single-digit growth in North America. Nike’s North American revenue came to $3.81 billion, missing analysts’ consensus of $3.87 billion. Internationally, China continues to drive the firm with revenues growing 24% on a currency-neutral basis. 

Nike Chief Financial Officer, Andrew Campion, said fiscal fourth-quarter revenue would rise in the "low single-digit" percentage range from the prior year, which was below consensus estimates. However, the company is bullish on the growth being driven by women.  Nike is taking a hit this morning, down 4%, however the stock is climbed 22% over the past 3 months.

Global Weakness

Germany’s 10-yr government bond dived below zero for the first time since October 2016, as German manufacturing contracted for the third consecutive month. 

* German bund yields briefly turn negative

* U.S. bond yields at lowest since early 2018

* Pound under pressure, EU demands UK decision by April 12

The major indices are all in the red this morning. 
 

Comments

Any thoughts on the inverted yield curve reaction in markets today.? I must admit I find the last three trading days confusing. LarryHayes on 3/22/2019 11:11:26 AM

Here in America three month treasury bills yields just hit 2.47 taking them above the ten-year note yields of 2.469 this inversion is see as a yellow flag by some a red flag by others. This is because of the track record of inversion as a harbinger for recession. This condition needs to stay in place for at least ten days and even then the recession could take up to two years to actually occur. These lower rates are also hammering shares of financials. All of this is happening as many are still wondering why the Fed made such a dramatic path change with respect to rates. Could they have work suggesting a recession? The other side of that would be the Fed would be building tools to fight recession if they thought it was right around the corner. Couple this with more bad news at Boeing which has the stock back at the post-Lion Air crash low and NIke which disappointed the street with its US businesses and pedestrian guidance. We raised a little money closing a couple of positions but I'm not panicking. The market will become tougher (470 or 500 stocks up this year is very unusual) but there are going to be huge winners and the higher the market goes the bigger down sessions (law of large numbers). Charles Payne on 3/22/2019 11:39:37 AM

You are right on Charles; Investments come before Buy Backs. On Boeing's part (a company I adore) maybe a few people locked their hands behind their heads and put their feet up on the desk a fair amount of time before these two crashes. I really do not think they were actually negligent but took their eye off the ball too early. The 737 has been a great aircraft and the Max's will be also. Mark Parker on 3/22/2019 12:16:46 PM

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