Feb 1 • 8M

Fed Day: Set Up for Disappointment?

The rally in stocks over the last month seems to indicate yet another dose of Fed Pivot Hope-ium. This has not ended well in the past…

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Good morning contrarians! It is Wednesday, Feb. 1. The US Federal Reserve decides interest rates today. Happy Fed Day.

Stocks advanced yesterday after selling off early. The Nasdaq gained 1.7% to lead major US indexes and all but recapture losses from Monday.

State of Play

As of 0625 all is pretty quiet:

  • Stock futures are down a bit, with the Nasdaq and S&P off about 0.3% each;

  • Commodities are treading water. WTI crude oil is flat, trading around $79/barrel. Copper is down 1%;

  • Bonds are seeing a few bids, with the yield on the 10-year down 4 basis points to 3.49% (yields move inversely to prices).

Fed Day

The Federal Open Market Committee decides on interest rate policy today. An increase of 0.25 percent, to bring the rate to 4.75%, is all but dialed in at this point. The devil will be in the details of the policy statement and Jay Powell’s press conference. Investors will be looking for hints of interest rate cuts in the second half of the year. They may be disappointed. More on that in the bottom line.

Economic Data

The Fed may be the main game in town today, but it is not the only one. We also have the Job Openings and Labor Turnover Survey, or JOLTS, at 1000. Economists expect 10.25 million job openings, down from the 10.5 million seen last month. But here too the devil is in the details and the JOLTS report is rich in details. We mention the ‘quits levels’ every month at this time but there are other things as well.

We also get ISM Manufacturing PMIs at 1000. The expectation here is for a reading of 48.0, down a drip from the 48.4 recorded a month ago. Prices are expected to remain constant (39.5 anticipated versus 39.4 last month) but the employment reading is expected to drop to 49.0 from 51.4.

Construction spending is out at 1000 as well. Economists expect a month-over-month decline of 0.1% after an increase of 0.2% last month.


On top of everything else we’re still smack in the middle of earnings season. Pharma companies GlaxoSmithKline (GSK 0.00) and Novartis (NVS 0.00) are due to report before the open. Boston Scientific (BSX 0.00) and Humana (HUM 0.00) are imminent. Altria (MO 0.00), Peloton (PTON 0.00), and Scotts Miracle Grow (SMG 0.00) are also out before the open.

After the close at 1600 we’ll get Meta (META 0.00) earnings and several others.

The Bottom Line©️

The Fed will raise interest rates by 25 basis points and stick to its harsh language about inflation and price stability. Powell will be asked about cutting rates and will say it is far too early to speculate. The market will sell off on this even though it has been obvious that this was going to be exactly what would happen.

That, at least, is the way things are set up. It doesn’t have to play out that way of course. The Fed is always good for a surprise or two and the market may not necessarily react poorly if Powell & Co. do stick to their hawkish rhetoric.

The main question is if we can get the market to stop rallying. January was a stellar month for stocks, reminiscent of the brightest days of a frothy bull market. This despite little in the way of new information that would suggest looser days ahead for monetary policy or more in the way of economic expansion. For whatever reason investors are now acting like a ‘soft landing’ is the base case. That looks like a dangerous setup.

Nobody knows exactly what is going to happen of course. But if your job is to invest in risky assets, then one would think you will want to tread carefully here.

Having said that, the whole thing looks almost too obvious, which makes one think the disappointment scenario will simply not come to pass.

Whatever your views, remember to do your own research and make your own decisions.