Morning Commentary
I hate to say this, but listening to Treasury Secretary Yellen and later Federal Reserve Chairman Powell felt like watching the classic movie “Being There.” I mean this line from Jerome Powell: “We believe these are transient factors that will fade away, but the timing is uncertain.”
It’s been a long time since the economy has had long bouts of inflation. And considering many of the exogenous issues today, including the burst of reopening activity and supply chain issues, there is no doubt inflation will be transitory – at least large swathes.
Wages will continue to move higher, at least on the lower end of the income ladder, while higher rents are sticky. But Powell is going to bite down hard on hope and wait out the transition to true normalcy. Meanwhile, he asks everyone to ignore that dang ‘Dot Plot’, where his colleagues see rate hikes in 2023 rather than in 2024.
Another reason Powell wants to hold off for as long as possible is the Fed sees sharp decelerations in growth from this year to the following year, and that doesn’t even take the promised tax hikes into account.
Economic Projections |
2020 |
2021 |
2023 |
GDP |
7.0% |
3.3% |
2.4% |
March Projections |
6.5% |
3.3% |
2.2% |
Unemployment Rate |
4.5% |
3.8% |
3.5% |
March Projections |
4.5% |
3.9% |
3.5% |
PCE Inflation |
3.4% |
2.1% |
2.2% |
March Projections |
2.4% |
2.0% |
2.1% |
Core PCE Inflation |
3.0% |
2.1% |
2.1% |
March Projections |
2.2% |
2.0% |
2.1% |
Message of the Market
Yesterday, financial markets were all over the place, trying to interpret the Fed’s next move from the statement, ‘Dot Plot’ and Jay Powell’s press conference. Gold didn’t act like inflation was an issue, but bonds awoke from their slumber with yields spiking higher.
As for stocks, it was an ugly session for the most part, but I saw a lot of upcoming tech stocks take off. As a result, up volume edged out the down on the NASDAQ.
Market Breadth |
NYSE |
NASDAQ |
Advancing |
1,266 |
1,904 |
Declining |
2,034 |
2,345 |
52 Week High |
185 |
133 |
52 Week Low |
22 |
37 |
Up Volume |
1.60B |
2.41B |
Down Volume |
2.92B |
2.21B |
Today’s Session
Equity futures were down overnight, but slowly improved, as we got closer to the opening bell. The ten-year yield is lower after an unnerving spike yesterday. Also, yesterday, the S&P 500 tickled the 200-day moving average and held. It is in a precarious position, as it needs market breadth to improve.
Initial jobless claims unexpectedly rose to 412,000 from 376,000 snapping weeks of improvement.
IJC
Philly Fed edged a little lower to 30.7, future expectations, however, surged.
Note:
I think Jay Powell bought more time for the Fed despite the dot plot, and once the market becomes comfortable with this, overall bias should return to the upside.
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Comments |
Charles continues to educate us and stretch our vocabulary, exogenous and dot plot! Thanks Charles, learning about the economy and learning new adjectives and nouns. Looking forward to" Making Money " with Charles Payne on Sirius radio today while delivering " Meals on Wheels". Lorin K on 6/17/2021 10:07:32 AM |
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