Good morning contrarians! It is Thursday, Feb. 23.
Stocks treaded water yesterday, closing effectively unchanged. They were down a bit early in the session before FOMC meeting minutes gave investors enough hope to bid things up to the break-even point.
State of Play
As of 0635, it looks like a little risk appetite is returning:
Stock futures are pointing to gains led by tech, with the Nasdaq up 0.7%. S&P 500 futures are up 0.4%;
Commodities aren’t doing much. WTI crude oil is up <1% to trade around $75/barrel. Copper is down <1%;
Bonds are unchanged, with the 10-year yield now at 3.95% and 2-year at 4.71%.
Earnings
Bath & Body Works (BBWI 0.00%↑) just beat on top- and bottom-line estimates. YETI 0.00%↑ narrowly missed on earnings and revenues. Both companies instituted guidance, which will be interesting to watch going forward.
Alibaba (BABA 0.00%↑), Domino’s Pizza (DPZ 0.00%↑), Nikola (NKLA 0.00%↑), and Planet Fitness (PLNT 0.00%↑) are among other companies reporting before the open at 0930.
After the close at 1600 we’ll hear from Block ne Square (SQ 0.00%↑), Beyond Meat (BYND 0.00%↑), Carvana (CVNA 0.00%↑), MercadoLibre (MELI 0.00%↑), AutoDesk (ADSK 0.00%↑), and Booking (BKNG 0.00%↑), among others.
Economy
Atlanta Fed President Raphael Bostic is expected to speak at a banking outlook conference. This will be part of a ‘fireside chat’ scheduled for 1050. Bostic will be interviewed by former Kansas City Fed President Esther George (she just retired in January).
It’s Thursday so we’re due to get initial jobless claims at 0830. Economists expect 200,000 new claims, up a bit from the 194,000 seen last week. These numbers are still low.
Also at 0830, we’ll get the second reading of fourth-quarter GDP, which is expected to come in at 3.5%, matching the first reading. Wouldn’t expect very much to come from this even if it does deviate from the first reading by a few basis points.
The Bottom Line©️
There is starting to be some noise about buying bonds especially at the short end of the curve. This was one common theme of an institutional investor panel attended by yours truly this week. The idea is that the coupon of short-duration paper (which is effectively risk-free) is enough to make up for any volatility or loss of principal that might occur due to higher interest rates or inflation.
This may be true for very short-duration paper, but the thesis does not come without risks. Chiefly inflation, which will force the Fed to move ‘higher for longer’ on interest rates. If one is of the belief that inflation has effectively run its course and that the Fed will not have to raise rates after May, then this would make sense. If one thinks the Fed will likely be forced to raise beyond that, and that cutting rates will not occur for some time (like 2024 at the very earliest) then it makes less sense to pile into this trade.
For today’s stock market activity, it’s likely that earnings will drive things. Bostic may be good for a market-moving comment or two, but we will otherwise likely be rangebound until tomorrow’s PCE Deflator. More on that, tomorrow.
Fed's Bostic, More Earnings, Bullish Noise Around Bonds