Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets in the day ahead. Today is Thursday, Nov. 2. The Bottom Line segment of today’s podcast starts at (4:57) for listeners who want to skip ahead.
State of Play
The Federal Reserve kept its key interest rate unchanged as expected and upgraded its assessment of the economy. Fed Chair Jerome Powell in his press conference did his best to speak out of both sides of his mouth, saying on the one hand that there was still “a long way to go” to bring inflation down to the Fed’s 2% target and that slower growth is likely necessary to accomplish this. He also repeated that nobody at the FOMC is considering rate cuts. But then he also said risks were “more two-sided” and almost “balanced” in terms of doing too much or too little to ward off inflation.
That was good enough for investors. Stocks and bonds rallied into the close. As of 0645 it looks like the risk-on sentiment is set to continue:
Stock index futures are pointing to gains led by small caps, with the Russell 2000 up 0.9%. Nasdaq futures are up 0.8% with the S&P 500 up 0.5%;
Commodities are gaining ground as well. WTI crude oil is up 1.5% to trade around $81.50/barrel. Copper is up 0.5%;
Bonds are seeing bids, with the 10-year yield down 7 basis points to 4.72%. The 2-year yield is down 1bps to 4.96%;
Cryptos are rallying as well, with Bitcoin up 3% to trade around $35,500.
Known Events
A bunch of earnings today, the highlight being Apple (AAPL 0.00%↑) after the close.
Starbucks (SBUX 0.00%↑) beat on top- and bottom-line estimates and reported improved margins and strong same-store-sales, especially in China. That stock is up 7% in the pre-market.
Before the open we’re also due to hear from Palantir (PLTR 0.00%↑), Shopify (SHOP 0.00%↑), Crox (CROX 0.00%↑), Penn Entertainment (PENN 0.00%↑), Peloton (PTON 0.00%↑), Marriott International (MAR 0.00%↑ ) and several others.
After the close we’ll also get Block (SQ 0.00%↑), DraftKings (DKNG 0.00%↑), Carvana (CVNA 0.00%↑), Coinbase (COIN 0.00%↑), Booking Holdings (BKNG 0.00%↑), and Expedia (EXPE 0.00%↑), among others.
The Bank of England sets interest rate policy at 0700. The BOE is widely expected to keep its key rate at 5.25%. This is mostly just the domain of currency traders.
It’s Thursday so we get initial jobless claims at 0830. Economists expect 210,000 claims, identical to last week, roughly in line with the four-week average of 207,500.
Factory orders are out at 1000. Economists expect an increase of 1.9% month-over-month, an improvement over the 1.2% seen last month.
The Bottom Line©️
Apparently mixed messages from the Fed and Powell are better than straight up hawkish rhetoric. That makes sense on some level. Fed Fund Futures are now pricing in no change to rates until the June meeting (as in eight months from now) at which point traders are pricing in a 45% chance of a rate cut.
Is this just the latest dosage of Fed pivot hope-ium? Are investors being naive again? Could be. But don’t fight the tape. If this is what the market is giving us, then this is what the market is giving us. It sure opens up an opportunity though, to short bonds and stocks ahead of unexpected (at this point) further tightening.
The Contrarian’s portfolio has been beaten up enough (Estee Lauder (EL 0.00%↑) being the latest example) that he has, to quote Yeats, lost all conviction. Besides, maybe the market is even right this time? Soft landing here we come?
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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Mixed Messages From the Fed: Good Enough for Markets