Fed, Earnings, and Econ Data Create Feel-Good Moment

It is all good for the stock market this morning — or at least it feels that way.

Currently, the S&P 500 futures are up 34 points and are trading 0.8% above fair value, the Nasdaq 100 futures are up 206 points and are trading 1.4% above fair value, and the Dow Jones Industrial Average futures are up 91 points and are trading 0.3% above fair value.

The pacesetter for those moves is Meta Platforms (META). It is up 9.6% following its earnings report, which clearly exceeded expectations both in terms of the results and the guidance. This move has put a bid in other mega-cap stocks, which has provided some added ballast for the equity futures market.

It isn’t just about Meta Platforms, though. The stock market is also keying off pleasing results from a litany of companies, such as McDonald’s (MCD), Comcast (CMCSA), Lam Research (LRCX), AbbVie (ABBV), Mastercard (MA), and Royal Caribbean (RCL).

At the same time, it is keying off the hopeful view that the Fed is at, or near, the peak of its tightening cycle after digesting the remarks made by Fed Chair Powell at his press conference following the decision by the FOMC to raise the target range for the fed funds rate by 25 basis points to 5.25-5.50%.

The ECB followed suit this morning with a 25-basis points increase in its key policy rates, as expected.

Judging by the disposition of the equity futures market, investors are setting aside worries about a policy mistake of tightening too much, although this morning’s data provided another reminder that the lag effect of prior rate hikes is, well, still lagging to a large extent.

• Initial jobless claims for the week ending July 22 decreased by 7,000 to 221,000 (Briefing.com consensus 233,000). That is the lowest level since February. Continuing jobless claims for the week ending July 15 decreased by 59,000 to 1.690 million, also the lowest level since February.
  • The key takeaway from the report is much the same: the low level of initial claims — a leading indicator — is a reflection of employers seeing demand holding up well enough such that they are reluctant to let go of employees in a tight labor market.
• The Adv. Q2 GDP report showed real GDP increasing at an annual rate of 2.4% (Briefing.com consensus 1.6%) following a 2.0% increase in the first quarter, although consumer spending slowed to an annual rate of 1.6% from a heady 4.2% in the first quarter. The GDP Price Deflator dropped to 2.2% from 4.1% in the first quarter.
  • The key takeaway from the report is an obvious one: the U.S. economy was a long way from a recession in the second quarter. Real final sales of domestic product, which exclude the change in private inventories, were up 2.3%
• June durable goods orders increased 4.7% month-over-month in June (Briefing.com consensus 1.0%) following an upwardly revised 2.0% (from 1.7%) in May. Excluding transportation, durable goods orders increased 0.6% month-over-month in June (Briefing.com consensus 0.2%) following an upwardly revised 0.7% increase (from 0.6%) in May.
  • The key takeaway from the report is that new orders were up across most durable goods categories, reflecting continued demand for an economy that continues in a growth mode.
• The June Adv. International Trade in Goods deficit narrowed to $87.1 billion from $91.1 billion. Separately, Adv. Retail Inventories were up 0.7% and Adv. Wholesale Inventories were down 0.3%.

Treasury yields moved higher after the data. The 2-yr note yield is up four basis points to 4.87% and the 10-yr note yield is up four basis points to 3.89%.

The equity futures market, meanwhile, maintained its bullish stride, underpinned by good vibes related to earnings, the economy, and monetary policy in addition to a fear of missing out on further gains.

We suspect, too, that there is an abiding appreciation for the notion that the trend is your friend… until it isn’t. The trend in the stock market has very much been the friend to bullish-minded traders, who look intent to keep riding it at today’s open, putting the Dow Jones Industrial Average on course for its longest winning streak since 1897.

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Originally Posted July 27, 2023 – Fed, earnings, and econ data create feel-good moment