EmailThe equity market has fed at the trough of easy monetary policy for years now. Yesterday, the FOMC kept the trough full with a directive that basically said: (a) economic activity is weak and isn't what it should be and (b) we won't be withdrawing our accommodation anytime soon.
Rally material, right? Not.
Actually, the market retreated following the directive and registered modest losses for the session. The response had the semblance of being a sell-the-news reaction, because it didn't make sense that the market would sell off on a continued pledge to ease quantitatively when it has been that very pledge that has carried the market to the doorstep of a new all-time high.
We'll call it profit taking then, but it might have also been an early sign that the market is set for a period of consolidation following the strong start to the year. To that end, it did not escape our eye that transports -- the best-performing sector year-to-date -- were the biggest loser yesterday, that gold prices jumped 1.2%, and that Treasuries pared their losses after the FOMC directive.
Reports that Israel attacked a Syrian truck convoy believed to be carrying chemical weapons also provided a wake-up call that the world isn't a perfect place despite the rose-colored view of things embedded in stock prices at the moment.
On a related note, there are reports today that Syria and Iran are threatening to retaliate for the Israeli airstrike. Oil prices are lower following that headline, so it doesn't appear as if energy traders are viewing it as a credible threat. One thing you can never take for granted with geopolitics in the Middle East is that you can never take things for granted.
Today's activity looks set to start on a slightly lower note. The S&P futures are trading 0.2% below fair value.
The latest wave of earnings reports is a mixed bag.
Qualcomm (QCOM), Facebook (FB), Pulte Home (PHM), Bemis (BMS), Mastercard (MA), and Ryder (R) are some of the notable companies that topped the Capital IQ consensus estimate while ConocoPhillips (COP), Aetna (AET), Dow Chemical (DOW), Hershey (HSY), and UPS (UPS) are some of the notable companies that missed estimates. Be sure to visit Briefing.com's Earnings Calendar for the full rundown of reports.
Similarly, this morning's economic releases provided some mixed results.
Initial claims for the week ending January 26 increased by 38,000 to 368,000 (Briefing.com consensus 345,000). This figure supports the notion that the lower readings over the prior two weeks were primarily the result of seasonal adjustment problems. Today's number drives initial claims right back to the 350,000-400,000 range where they have been bounded for most of the last year.
Continuing claims for the week ending January 19 jumped by 23,000 to 3.198 mln (Briefing.com consensus 3.200 mln).
The Personal Income and Spending report for December produced a headline surprise of another kind. Specifically, it showed personal income increased 2.6% in December versus the Briefing.com consensus estimate of 0.7%.
Our economist, Jeff Rosen, had his estimate pegged at 3.4% growth based on an analysis of yesterday's Q4 GDP report and a recognition that the drive to lock in lower capital gains tax rates before the end of 2012 would likely lead to a big jump in investment income.
Sure enough, personal income receipt on assets surged 16.1%. That money, however, was not spent. Spending increased 0.2% and the personal savings rate surged to 6.5% from 4.1%.
It is reasonable to think a lot of the money from selling assets at the end of 2012 has worked its way back into the stock market based on the strong bid stocks have had since the start of the year (and following the fiscal cliff deal on tax rates).
The Q4 Employment Cost index was right in-line with expectations, showing a 0.5% increase. The Chicago PMI report for January (Briefing.com consensus 50.5; prior 48.9) will cross the wires at 9:45 a.m. ET.
Treasuries have strengthened a bit following the economic reports. The 10-year note is up 5 ticks and its yield is down to 1.97% after crossing 2.00% yesterday.
It's not risk off for stocks, but it's not exactly full risk on at the moment either.
