Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets in the day ahead. Today is Friday, Dec. 1. The Bottom Line segment of today’s podcast starts at (3:38) for listeners who want to skip ahead.
State of Play
Large-cap stocks rallied yesterday after the PCE Deflator came in almost exactly as anticipated. The joy was not shared by tech stocks however, as the Nasdaq ended yesterday’s session lower. As we look at our board of indicators at 0645, things are pretty quiet:
Stock index futures are effectively unchanged. No major index is moving more than 0.1% from the break-even point;
Commodities aren’t doing much either. WTI crude oil is unchanged, trading around $76/barrel. Copper is up 0.8%;
Bonds are seeing a few bids. The 2-year yield is down 4 basis points to 4.68%. The 10-year is down 2bps to 4.33% (yields move inversely to prices);
Cryptos are gaining ground with Bitcoin up 2% to trade around $38,600.
Known Events
The first reading of manufacturing PMIs for November is out at 1000. Economists expect the figure to print at 47.6, below the 50 level that separates expansion from contraction but an improvement on the 46.7 seen last month. There is a separate “manufacturing prices” PMI, which is expected to come in at 46.2 after printing at 45.1 last month. It’s unclear what a “good” or “bad” print is here. Does lower PMI mean they’re expecting fewer price pressures (which is a good thing?) Or does that mean they’re less confident in prices going forward?
Fed Chair Jerome Powell is due to speak at 1100 at Spellman College. The speech (actually a “fireside chat”) is ostensibly going to be about “navigating pathways to economic mobility.” It will be broadcast live on Spellman’s website. It sounds like there may not be a single thing about monetary policy to come from this however. “Pathways to economic mobility” sounds like an opportunity to wheel out the Fed boilerplate about “equal opportunities” and such. But worth monitoring nonetheless.
The Bottom Line©️
November was a great month for stocks, none more so than large caps. The Dow had its best month in more than a year and closed yesterday at its highest level of 2023. Although the move was even better for tech, with the Nasdaq advancing 10% over the course of the month.
Are happy days here again? It certainly seems that way, with the Fed now making noise about backing off ‘higher for longer’ and futures traders pricing in an interest rate cut as early as March. It’s worth pointing out that the Fed generally only cuts rates at signs of trouble. Inflation may have been slain (or shortly will be) but presumably you still need stress in the economy before monetary policy can be loosened.
It’s unclear how much, if any, of this Powell will even be asked about today. The speech is about economic mobility as mentioned, which doesn’t exactly portend a nuanced discussion about the intricacies of monetary policy. Powell has managed to spook markets before with these speeches, most recently a couple of weeks ago. But the market bounced right back.
Watch bonds more than stocks, which don’t really seem capable of moving much this week outside of earnings or buybacks catalysts. If yields shoot up it means the market has gotten spooked again. But even if that happens, the broader message about Fed policy has been pretty clear, so it stands to reason that bonds should resume their rally after a day or two once the dust settles.
And that’s assuming Powell even addresses monetary policy today. He could avoid it outright, which would turn today into another snoozer.
On the topic of bonds and Fed policy, it’s really worth listening to the bi-weekly guest podcast if you haven’t already. It’s only available to you now. Everybody else needs to wait until next week and when they do get it they’ll have to put up with annoying ads and announcements. You have no such annoyances, so do take advantage and give it a listen:
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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