Tuesday's Close

E-mini S&P 500 (June): Settled at 4179, down 0.50

E-mini Nasdaq-100 (June): Settled at 13,953, down 58.50

It’s Fed Day; a policy decision is released at 1:00 p.m. CT and will be followed by Chair Jerome Powell’s press conference at 1:30 p.m. CT. Will the committee open the door for a taper this year? Their expectations have fallen into place perfectly, and despite all the Fed doubters, we believe the committee has done a terrific job in taming the economic downturn due to the pandemic, allowing for a robust rebound. 

If you look across some media outlets, it’s truly surprising to see the amount of hatred and criticism directed toward Fed policy. When seeing this, 1 thing comes to mind: trade the market you have, not the market you want. It would seem those critics want the economy to struggle in order to justify their ongoing negativity. At the end of the day, the Federal Reserve has called for inflation to remain contained, and by their metrics it certainly is.

Core CPI for March was +1.6% YoY and +0.3% MoM. The Fed’s preferred inflation gauge, the Core PCE Index, for March is due on Friday. Expectations are for +1.8% YoY and +0.3% MoM. Both datasets are well below the Fed’s 2% inflation target and can run hot given symmetrical inflation targeting. Despite these contained metrics, yes, we agree that we can’t argue that inflation is showing up across the commodity space and thus in our everyday pockets; look at Lumber, Copper, Agricultures. 

That said, prices in other corners are also rising. Look at the chip shortage due to supply constraints and the demand coming from innovative technologies such as that for autos. However, barring all the critics, reinventing the wheel mid-spin isn’t ideal; the Fed’s metrics are the Fed’s metrics. Let’s also not forget the committee expects some inflation, but also expects it to be transitory given the base data from the onset of the pandemic last April and through the summer.

Bill Baruch joined the TD Ameritrade Network yesterday to discuss the rise in Copper and Lumber as well as dive into some of the earnings action.

The Federal Reserve’s other mandate is maximum employment. Following March’s Nonfarm Payroll report earlier this month that displayed nearly 1 million jobs being added, the economy is still down 8 million jobs from before the pandemic. As we’ve written, assuming the next 4 months of reopenings and summer hiring bring back 4 million jobs, the economy is still short 4 million, and those jobs represent the people who’ve been hardest hit by the pandemic. Not only the committee, but the White House, is most worried about these families and individuals.

Today, the Fed certainly could open the door for a taper of its unprecedented asset buying later this year, however, it must be dually coupled with next week’s April jobs report. Will we see another 1 million jobs added to this economy and set a pace to recover all jobs lost by the first quarter 2022?

Speaking of the White House and those hardest hit by the pandemic, President Biden will address a joint session of Congress at 8:00 p.m. CT tonight to lay out a new spending plan. This $1.8 trillion plan is expected to be financed partly by taxes and will focus on lower-to-middle income families, childcare, and schooling.

Between the heart of earnings season, the Fed, and President Biden’s speech tonight, we could easily characterize today as critical. 

Boeing missed both top and bottom lines ahead of the bell and the stock’s initial reaction is down about 1%. Alphabet released a blowout report after the bell yesterday and is up 5% ahead of the bell, but Microsoft underwhelmed, despite strong revenue growth, and is down about 2.5%. 

Also reporting yesterday was Starbucks, down -1.5%, and Visa, up +1.5%. Amid a deluge of companies reporting before the bell, Shopify is one we’re watching closely after its recent decline, and it’s currently up more than 5% after beating expectations. 

After the bell, all eyes will be on Apple and Facebook, with Qualcomm, Ford, Teledoc, Logitech, and a slew of others also reporting. (Disclosure: Blue Line Capital owns Alphabet, Microsoft, and Apple)

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