Say what you want about earnings being better than feared and economic growth not being as bad as expected, yet the truth came out yesterday that there has been no more important catalyst for the stock market in 2019 than the idea that the Federal Reserve has pivoted from being a foe to a friend with its monetary policy outlook.
The idea that the Fed put, the Powell put -- or whatever you want to call it -- is back on the trading table has created a reassurance for market participants that has translated into a risk-on trade that has featured the outperformance of the cyclical sectors, never mind that global growth is slowing.
To that end, China reported its second straight month of contraction for its manufacturing PMI; eurozone Q4 GDP data showed Italy has slipped into a recession; the Summary of Opinions from the most recent Bank of Japan meeting highlighted concerns about downside risks to global growth; and the FT is reporting today that Germany is gearing up to provide a fiscal stimulus package for its economy.
The first quarter earnings growth estimate has been revised down to -0.5% (as in no growth), according to FactSet, but like we said in last week's installment of The Big Picture, none of this seems to bother the stock market much yet, because nothing has gone up more than the market's enthusiasm for the idea that it doesn't need to live in fear of the Fed's policy approach.
Fed Chair Powell pretty much said as much in his press conference yesterday. He said the baseline projection at the Fed continues to see solid growth for the U.S. economy, but that the case for a rate hike has weakened somewhat and that the Fed is open to adjusting its balance sheet normalization effort if necessary. That view effectively muted his prior comment in December that the balance sheet reduction was on "auto pilot."
Taking it all in, it is easier to understand why there has been such a strong trading response to earnings and revenue guidance that has been better than feared, and an even stronger response to earnings and revenue guidance that has actually been good.
Today's response mechanism, however, is a little dull, but likely only because yesterday's rally was as sharp as it was in response to the earnings news out of Apple (AAPL) and Boeing (BA), and the dovish-minded commentary out of Fed Chair Powell.
The S&P futures are down two points and are trading in-line with fair value. The Nasdaq 100 futures are up 19 points and are trading 0.6% above fair value. The Dow Jones Industrial Average futures are down 83 points and are trading 0.4% below fair value.
It's a mixed indication for the most part, which fits the mixed tenor of the earnings results and the knee-jerk responses to those results.
Dow component Microsoft (MSFT), for instance, beat the quarterly EPS estimate by a penny on revenues that were just shy of expectations. Its stock is indicated 2.7% lower. Fellow Dow component Visa (V) surpassed top and bottom-line expectations for the fourth quarter, but noted on its call that it saw a slowdown in cross-border transactions in the December-January period. Its stock is indicated 2.3% lower.
Facebook (FB) beat estimates, delivering a report that was both better than expected and better than feared. Its stock is up 11% in pre-market trading and is the basis for the outperfomance of the Nasdaq 100 futures.
Tesla (TSLA) is down 3.3% after missing EPS estimates and announcing the retirement of its CFO; and UPS (UPS) is up 4.7% after beating the fourth quarter EPS estimate but guiding FY19 EPS toward the lower end of expectations.
That's just a small sample of the companies that have reported since yesterday's close, but a representative sample of why there isn't a strong bias of any kind showing up in this morning's futures trade.
In the same vein, a tweet from President Trump that trade talks are going well, but that a final trade deal won't be reached until he has a chance to meet with President Xi has stirred up some mixed feelings for the market about the ability to reach a trade deal by March 1.
It's neither a good nor bad revelation from the president, but it just keeps the market guessing about this important issue.
Separately, this morning's economic data was a mixed bag of sorts.
Initial claims for the week ending January 26 increased by 53,000 to 253,000 (Briefing.com consensus 220,000). Continuing claims for the week ending January 19 increased by 69,000 to 1.782 million.
The headline increase is notable, yet it is apt to be dismissed at this juncture as some typical volatility in a series that saw initial claims hit their lowest level last week in nearly 50 years.
The Employment Cost Index, meanwhile, showed compensation costs for civilian workers increased 0.7% (Briefing.com consensus +0.8%), seasonally adjusted, in the fourth quarter, down from 0.8% in the third quarter.
The upshot of the report is that wages and salaries for civilian workers increased 3.1% for the 12 months ending in December 2018, versus 2.5% for the 12-month period ending in December 2017.
These are data points the Fed will reportedly be keeping tabs on, but yesterday's fresh perspective from Fed Chair Powell made it clear the Fed isn't going to be in a hurry now to jump to monetary policy conclusions.