The stock market is waking up today to a new world order that it has had some nightmares about in previous weeks and months. Specifically, it is waking up to the reality that the Jerome Powell-led Federal Reserve isn't inclined to ride to its rescue with market-friendly policy actions and pronouncements.
That stark message was made apparent yesterday when the "dovish hike" the market had in mind was undercut by an impression formed from the policy directive, and Mr. Powell's remarks at his press conference, that the Fed isn't as frazzled by the economic outlook as the stock market seems to be.
Two nettlesome talking points stood out in the press conference: (1) Fed Chair Powell said monetary policy does not need to be accommodative now and that he doesn't believe the current policy is restrictive and (2) Fed Chair Powell doesn't see the Fed altering its approach to balance sheet normalization as it prefers the use of the fed funds rate to be its main policy method.
The Fed Chair offered an allowance that 2019 might not be as kind to the Fed's forecasts as 2018 was, which could lead to a change in its current policy perspective; nevertheless, this market wanted dovish assurances in the hear and now about what it can expect and it didn't get them.
The result was a broad-based sell-off on Wednesday after the Fed decision and press conference that was fueled by a sense of chagrin that the "Fed put" is dead, as influential fund manager David Tepper highlighted for CNBC today.
The feeling that the Fed is working against the market, as it aims with its rate hikes to put some rate-cut insurance in its back pocket to use in the future, has been a nagging thought all year.
It has really nagged since the start of October, though, when the stock market began to buckle and growth concerns became more prominent with signs of a slowdown abroad, when the U.S. yield curve flattened in an unsettling way, and the cyclical sectors underperformed in a move that contradicted all of the positive pronouncements about the U.S. economic outlook.
Frankly, we were a little surprised yesterday that the market did not react more negatively initially to the earnings warnings from FedEx (FDX) and Micron (MU), both of which stemmed from weaker than expected demand.
Those warnings validated the growth concerns that have been unfolding in stock prices since the start of the year really, yet the early disregard of those warnings by the market was a reflection of a bygone era when the market had every confidence in the thought that the Fed had its back.
For what it's worth, both the Bank of Japan and the Bank of England left their key policy rates unchanged today. That was expected, yet those policy decisions have taken a distant back seat to the Fed's policy action.
Strikingly, the futures market is trying to keep a stiff upper lip today, battling back from overnight losses, yet they have fallen back again into negative territory and are pointing to a slightly lower start for the major indices.
The ability to bounce back from overnight losses is apt to be attributed to an underlying belief that the market is due for a bounce, with the S&P 500 now down 14% since the start of October. It's a claim that has been made often in recent weeks and it's also a claim that has often been refuted in recent weeks with a predominant inclination to sell into strength.
We'll see what transpires today, but little has changed from yesterday, and the day before yesterday, and the day before that, when it comes to waning confidence in the growth outlook and the Fed's supportive nature.
On a related note, the Philadelphia Fed Index for December checked in at 9.4 (Briefing.com consensus 17.5) versus 12.9 in November. The December reading is the lowest since August 2016.
Initial claims for the week ending December 15 increased by 8,000 to 214,000 (Briefing.com consensus 221,000). Continuing claims for the week ending December 8 increased by 27,000 to 1.688 million.
Those claims levels remain relatively low, which is a good thing, but another problem this market has been having is that it is wrapped up in the thought that things are as good as they are going to get in terms of growth and earnings prospects, so the low level of claims hasn't acted as much of a buying catalyst this morning.
The key takeaway from the report is that it covers the period in which the survey for the December employment report is conducted. Accordingly, the low level of initial claims should translate into an expectation for solid nonfarm payroll growth in December.