Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Thursday, May 2. The Bottom Line segment of today’s podcast starts at (3:24) for listeners who want to skip ahead. Be sure to check out the new ‘One Year Ago Today’ segment at the bottom of this page.
State of Play
Stocks closed yesterday roughly unchanged after a topsy turvy session. The Federal Reserve kept interest rates unchanged as expected and Fed Chair Jerome Powell effectively assured markets there won’t be another hike. As we look at our board of indicators at 0635, it looks like some risk appetite is emerging:
Stock index futures are pointing to a higher open, led by tech. The Nasdaq is up 0.9% with S&P 500 futures up 0.6%;
Commodities are mixed. WTI crude oil is up 0.7% to trade around $79.50/barrel, which is quite a bit lower than where it was yesterday at this time. Copper is down 1.3%;
Bonds are unchanged. The 2-year yields 4.95% whilst the 10-year yields 4.62%;
Cryptos aren’t doing much. Bitcoin is unchanged at $57,700.
Today’s Known Events
Now that the Fed’s out of the way, the focus returns to earnings. Peloton Interactive (PTON 0.00%↑), Moderna (MRNA 0.00%↑), Shake Shack (SHAK 0.00%↑), and Wayfair (W 0.00%↑) report before the open at 0930.
After the close at 1600 the main event is Apple (AAPL 0.00%↑). At that time we’ll also hear from Coinbase (COIN 0.00%↑), Block (SQ 0.00%↑), DraftKings (DKNG 0.00%↑), and two travel names, Booking Holdings (BKNG 0.00%↑) and Expedia (EXPE 0.00%↑).
Seeing how it’s Thursday we’ll get initial jobless claims at 0830. Economists who were surveyed expect 212,000 new claims, not that different from the 207,000 recorded last week and right in line with the four-week average of 213,000.
We’ll also get the US trade balance at 0830. The expectation here is for a trade deficit of $69.50 billion, slightly larger than the $68.9 billion recorded last month. Remember trade deficits are generally good for the global economy because they mean US consumers, the largest such block in the world, are buying stuff — usually stuff they don’t need.
Factory orders are out at 1000. This number is expected to increase by 1.6% month-over-month, effectively the same as last month when it was 1.4%.
The Bottom Line©️
So it turns out that fears of further rate hikes were what was weighing on the market these last couple of days. Once Powell took that option off the table yesterday stocks rallied, though they did drop into the close. Interesting also that bonds gained ground, with yields well off of the highs of a day ago.
That still leaves some concerns about the consumer, as evidenced by Starbucks (SBUX 0.00%↑) and McDonald’s (MCD 0.00%↑) earnings. But it’s possible those issues are company-specific and/or linked to inflation. The picture we’re getting from travel stocks has so far been quite different this earnings season. Look at Delta Air Lines (DAL 0.00%↑), which is on the record predicting a bang-up travel season this summer.
One Year Ago Today…
The First Republic Bank bankruptcy was quickly fading from view as investors prepared for a Fed meeting that promised yet another 25bps rate hike (Daily Contrarian, May 2, 2023).
…and What Happened
The Fed would indeed hike rates. Two months later it repeated the exercise to raise rates to their current level.
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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Focus Returns to Earnings: Apple the Main Event