Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Thursday, Sept. 19. The Bottom Line segment of today’s podcast starts at (4:09) and Stocks on the Contrarian Radar©️ at (6:58) for listeners who want to skip ahead.
State of Play
The Federal Reserve slashed interest rates by 50 basis points yesterday. Markets liked this, then soured on it when Fed Chair Jerome Powell said it was a mere “recalibration” and that “we’re not going back” to a world of ultra-low interest rates. At the end of it the whole thing was a wash and stocks finished effectively unchanged.
As we eye our board of indicators for signs of direction at 0655 that is all in the rear view mirror and risk-on is in charge:
Stock index futures are pointing to a huge move higher at the open. The riskiest part of the market, small caps, are leading things out. The Russell 2000 is up 3%. Nasdaq futures are 2% to the good, followed closely by S&P 500 futures (+1.8%);
Commodities prices are showing the same thing, with copper up 1.4% and WTI crude oil up 0.7% to move north of $70/barrel again;
The same in cryptos. Bitcoin is up 4% to trade up around $62,500;
Bonds are the one outlier as these aren’t moving. The 2-year yields 3.59% whilst the 10-year yields 3.71%.
Today’s Known Events
Powell yesterday spoke again of how the labor market “bears watching.” We’ll get one data point for that at 0830 with the weekly initial jobless claims figure.
Economists who were surveyed expect 230,000 new claims, identical to last week and right in line with the four-week average of 230,750.
There are some earnings today as well. Darden Restaurants (DRI 0.00%↑) and Cracker Barrel Old Country Store (CBRL 0.00%↑) report before the open at 0930. After the close at 1600 FedEx (FDX 0.00%↑) is the biggest name to report.
The Bottom Line
Is the move in futures a ‘delayed reaction’ to the Fed’s rate cut? It’s unclear what exactly is going on here. Maybe investors did their own recalibration, focusing more on Powell’s optimistic words about the state of the economy than on the fact that he won’t be injecting massive amounts of monetary stimulus for no reason.
As mentioned yesterday, the economy is the main driver of future market movement so this makes sense. It means we’re back to ‘no landing’ scenarios for the economic cycle.
How long before that leads to concerns about renewed hawkishness from the Fed? Well, let’s not ruin things right away…
Stocks on the Contrarian Radar©️
FedEx (FDX 0.00%↑) is seen as a good gauge of the consumer sector seeing how much the company is tasked with delivering goods to Americans’ homes. It’s not the only company doing this — not by a long shot — but can still be a solid indicator. For this reasons, earnings this afternoon will be closely watched.
As you can see, FDX has tracked the S&P this year, albeit with a lot more volatility:
NB: Those huge moves in FDX were reactions to earnings. The last two quarters these beat estimates and the stock rocketed higher. Three-for-three today? Investors are clearly hoping for this, with the last eight trading days positive ones for FDX.
The bar is higher now after raised guidance. Could FedEx disappoint everybody and sell off? If so, might that be a buying opportunity? At 14x forward earnings, 0.8x sales, and 8x cash flows, the stock is not particularly expensive.
Of course, you need the economy to play along here. If Americans start losing their jobs they will not buy buying as much stuff from Amazon and elsewhere, which will cut into FDX’s business…
A final word of caution on that. FDX has in the past used ‘the economy’ as a straw man for its own shortcomings. Most notably in September 2022. Just because FedEx management blames the economy for earnings disappointments, doesn’t mean these are a realistic concern…
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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Fed Recalibration, Jobless Claims, FedEx Earnings