Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets in the day ahead. Today is Wednesday, Jan. 31, 2024. Fed Day. The Bottom Line segment of today’s podcast starts at (4:52) for listeners who want to skip ahead.
State of Play
Tech stocks dropped yesterday and the sell-off gathered pace overnight after earnings from Google (GOOG 0.00%↑), Microsoft (MSFT 0.00%↑), and Advanced Micro Devices (AMD 0.00%↑) disappointed investors. As we look at our board of indicators at 0630, that is all still weighing on sentiment:
Stock index futures are pointing to a lower open with tech leading the drop. The Nasdaq is down another 1.2% with S&P 500 futures down 0.5%. If there’s a bright spot, it’s supplied by small caps, with the Russell 2000 up 0.3%;
Commodities are dropping a bit with WTI crude oil down 1% to trade around $77/barrel. Copper is unchanged;
Bonds continue to see some bids, with the 2-year yield down 3 basis points to 4.33% and the 10-year down 3bps to 4.03% (yields move inversely to prices).
Today’s Known Events
It’s Fed Day, with the Federal Open Market Committee concluding its two-day meeting today. The interest rate decision (in all likelihood another pause) will be announced at 1400 with Jerome Powell’s press conference to follow at 1430.
We’re also due to get ADP nonfarm payrolls, which can probably be safely ignored seeing how it doesn’t appear to have any predictive power over the government’s official nonfarm figure, which is out Friday. But for fun, economists expect 145,000 new jobs, down a bit from the 164,000 seen last month (official nonfarms were 216,000 last month for what that’s worth).
We do have some earnings worth mentioning. Before the open at 0930 we’ll hear from Boeing (BA 0.00%↑) and MasterCard (MA 0.00%↑). After the close at 1600 we’ll hear from Qualcomm (QCOM 0.00%↑). Other companies report as well but those are the highlights.
The Bottom Line©️
The Fed will quickly reclaim the narrative from tech today — unless the sell-off really accelerates during regular trading hours. The earnings from Google, Microsoft, and AMD weren’t even bad — they all beat top- and bottom-line estimates, but Google’s ad business was one outlier (barely missing estimates) and AMD’s outlook was weak. Seeing how this follows an equally tepid outlook from Intel (INTC 0.00%↑) last week, it maybe makes sense that investors are getting a little skittish around tech. Or not? Maybe this selloff is an over-reaction and therefore a buying opportunity? You make the call on that. The Contrarian will sit this one out having proven to himself that he is incapable of timing anything at all in tech.
That leaves the Fed and the main focus will be on when we could be getting these rate cuts. Yes, when. No, not if. Fed fund futures are pricing in a 45% chance of a rate cut at the March 20 meeting and a 52% chance for May’s meeting. Could that all be hopelessly optimistic given the economic strength we’ve seen from recent data releases? It could, or the Fed could cling to whatever slowdown there has been in growth momentum to justify rate cuts — keeping in mind that economics is very much about the rate of change.
The latest guest episode podcast, recorded yesterday, actually gets into this at some length. It’s available to you (premium subscribers) only right now so be sure to check it out:
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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Fed Day, Tech Earnings Disappoint