Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets in the day ahead. Today is Wednesday, July 26. Fed Day.
State of Play
As of 0630 all is pretty quiet as we await earnings and of course the Fed:
Stock index futures are effectively unchanged. No major US index is moving more than 0.3% from the break-even point;
Commodities are trending lower, with WTI crude oil down 1% to trade around $79/barrel and copper down 0.6%;
Bonds are seeing a few bids, with the 2-year yield down 4 basis points to 4.86% and the 10-year down 2bps to 3.90% (yields move inversely to prices).
Known Events
The Federal Reserve interest rate decision is going to attract most of the attention today. But the decision itself would appear to be dialed in, with Fed fund futures pricing in a 98% likelihood of a 25bps increase. That means the market reaction will likely depend on what is said in the policy statement and by Jerome Powell in the press conference.
It’s a big day for earnings too though: AT&T (T 0.00%↑) just reported results that beat analyst estimates for cashflows, so would expect that stock to move higher today. Boeing (BA 0.00%↑), Coca Cola (KO 0.00%↑), and Hilton Worldwide (HLT 0.00%↑) are among other companies reporting before the open at 0930.
After the close at 1600 it’s Meta (META 0.00%↑), Chipotle (CMG 0.00%↑), Lam Research (LRCX 0.00%↑), eBay (EBAY 0.00%↑) and Mattel (MAT 0.00%↑) who report.
The Bottom Line©️
Bonds have been selling off lately, presumably because an economic soft landing is becoming the base case and that precludes any immediate need for rate cuts. There could be renewed concerns about ‘higher for longer’ interest rate policy if the economy turns out to be too good. The Taylor Swift economy, a term coined by GFotP and former guest Callie Cox, may be morphing into the Barbie economy. Whatever you want to call it, the strength of the US consumer does not seem to be abating. That’s good for the economy, ostensibly good for stocks, but bad for bonds.
There are three more FOMC meetings this year after today’s: Sept. 20, Nov. 1, and Dec. 13. Fed fund futures are not pointing to any interest rate movement at all for the rest of the year. It will be interesting to see how that changes today. Remember that markets tend to overreact to what is said by Powell. At the end of the day the Fed is probably going to be data dependent. What happens with inflation and jobs is going to have more of an impact that whatever nuances emerge today.
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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Fed Day, Earnings