It is Wednesday, otherwise known as Hump Day for the week, yet there is a big hump for the market to get over today. That hump is the Federal Open Market Committee (FOMC) meeting and Fed Chair Powell’s press conference.
In truth, the FOMC decision at 2:00 p.m. ET is not the hump. Market participants widely expect the FOMC to raise the target range for the fed funds rate by 25 basis points to 4.50-4.75%. The hump is the press conference at 2:30 p.m. ET and what Fed Chair Powell says.
Will he make a concerted effort to push back against the easing of financial conditions, which are the offshoot of falling Treasury yields and rising stock prices, and the market’s expectation that the Fed will soon pause its rate hikes and then eventually start cutting rates before the end of the year?
The answer to those questions will be the late-afternoon drivers for the stock market, which also has the earnings report from Meta Platforms (META) to contend with after the close, earnings reports from Apple (AAPL), Alphabet (GOOG), and Amazon.com (AMZN) after Thursday’s close, and the December Employment Situation Report before Friday’s open.
Not wanting to get too far ahead of ourselves, though, the market has plenty to contend with this morning. There has been a rush of earnings reporting since yesterday’s close.
Those reports and the accompanying guidance in aggregate were mixed at best. Some of the post-earnings winners in pre-market action include Advanced Micro Devices (AMD), Peloton (PTON), Stryker (SYK), and Mondelez International (MDLZ); meanwhile, some of the more notable pre-market losers include Snap (SNAP), Match Group (MTCH), Waste Management (WM), and Electronic Arts (EA).
Beyond the earnings news, there was a weaker-than-expected Caixin Manufacturing PMI report out of China, some pleasing CPI and core-CPI inflation data out of the eurozone, and a weaker-than-expected ADP Employment Change Report for January.
Briefly, the ADP report showed an estimated 106,000 jobs were added to private-sector payrolls (Briefing.com consensus 170,000) following an upwardly revised 253,000 (from 235,000) in December. ADP attributed the soft January number largely to the effects of weather disruptions during the survey week and noted that hiring was stronger during other weeks of the month, matching the strength seen late last year.
That clarification seemed to dampen the market’s enthusiasm for the soft number, which at first blush would support the narrative that it creates another basis for the Fed to pause its rate hikes soon.
Then again, it is fair that one would set today’s reading aside knowing that the market will hear directly from the FOMC and the Fed Chair at 2:00 p.m. ET and 2:30 p.m. ET, respectively.
So, that gets us back to “the hump.” Like everyone else, we are keenly interested in what the Fed Chair will say, but we are more interested in how the market reacts to what the Fed Chair says.
It is possible that Mr. Powell will walk a hawkish line, but it is also possible that the market will denounce his views in a counterpunch to the Fed’s credibility. That is, the market may just remain resigned to fight the Fed. Any fighting spirit in the wake of a hawkish-minded Fed Chair will manifest itself in a weakening dollar, a nonplussed reaction in the Treasury market, and presumably more resilience than one might expect to see in the stock market.
Of course, if the Fed Chair chooses not to walk a hawkish line, then the stock market is apt to see a tacit blessing to keep rallying — or at least to maintain an inclination to buy on weakness, assuming the impending earnings results from Meta Platforms, Apple, Alphabet, and Amazon.com don’t lead the earnings growth outlook astray.
Those are some other humps the stock market needs to get over. The big hump, though, lies straight ahead.
Currently, the S&P 500 futures are down 11 points and are trading 0.3% below fair value, the Nasdaq 100 futures are down 15 points and are trading 0.1% below fair value, and the Dow Jones Industrial Average futures are down 152 points and are trading 0.4% below fair value.
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Originally Posted February 1, 2023 – Market staring at a big hump day
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