Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets in the day ahead. Today is Thursday, March 21. The Bottom Line segment of today’s podcast starts at (3:32) for listeners who want to skip ahead.
State of Play
Stocks rallied yesterday after Jerome Powell’s press conference. The Fed chair didn’t really say anything new so it was a bit of a mystery why stocks rallied as much as they did, with all three major indexes closing at all-time highs. Then Micron (MU 0.00%↑) reported strong earnings after the close and that stock put in a major rally overnight. As we look at our board of indicators at 0630, the risk on mood looks set to continue:
Stock index futures are pointing to more gains, led by tech. The Nasdaq is up 0.7% with S&P 500 futures 0.4% to the good;
Commodities are rising as well. Copper is up 0.9% and precious metals are rallying with gold and silver up 2%+ each. WTI crude oil is unchanged at $81/barrel;
Cryptos have resumed their rally with Bitcoin up 6% to trade close to $67,000 again;
Bonds too are seeing bids. The 2-year yield is down 4 basis points to 4.56% whilst the 10-year is down 4bps to 4.23% (yields move inversely to prices).
Today’s Known Events
It’s a slow day, but we do get some earnings that are worth paying attention to. Darden Restaurants (DRI 0.00%↑) are due at the top of the hour and after the close we’ll hear from Nike (NKE 0.00%↑), Lululemon (LULU 0.00%↑), and FedEx (FDX 0.00%↑) report this afternoon.
The Bank of England decides on interest rates at 0800. The BOE is widely expected to keep its key policy rate unchanged.
Seeing how it’s Thursday we’ll get initial jobless claims at 0830. Economists who were surveyed expect 212,000 new claims, up a bit over the 209,000 recorded last week and slightly short of the four-week average of 216,000.
We’ll also get Flash PMIs from S&P Global at 0945. The Services PMI is expected to hold steady at 52 after a 52.3 print last month. Manufacturing is expected to drop a bit, to 51.8 from 52.2. Both are still north of the 50 level that separates expansion from contraction.
Finally existing home sales are out at 1000. Economists expect 3.95 million sales, down a bit from the even 4 million from a month ago.
The Bottom Line©️
So yeah, hard to see what exactly caused markets to rally as much as they did yesterday. Maybe it was the fact that the Fed maintained there would be three interest rate cuts this year? Or maybe it was just Jay Powell’s calm demeanor. He even cracked a joke!
It still sounds a bit absurd for the Fed to be talking about cutting rates in light of the latest inflation readings. But Powell for his part said these could be explained away by seasonal elements. (He didn’t say what the seasonal elements are. Presumably anything can be explained by seasonal elements if you really want them to. No matter). But Powell also tempered the dovish comments with talk about risks being “two sided.” That’s the same refrain he originally wheeled out in December if you’re keeping score.
If this all sounds worrisome you can sell bonds, sell stocks, sell anything and everything. We are at all-time highs, after all. The Contrarian for his part is going to let it ride for a bit. Don’t fight the tape. But you do you.
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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Markets Cheer Powell Again