With Stocks Near Record Highs, Investors Await Speech By Fed’s Powell

Today, investors are scheduled to get the second major economic speech in as many days as the Federal Reserve chief will follow comments from President Trump that didn’t have much impact on the market.

https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Federal Reserve: morning Market Update
5 min read
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Key Takeaways

  • Headline CPI comes in a bit hotter than expected

  • But core consumer inflation reading is as expected

  • Fed’s Powell scheduled to address Congress later today

(Wednesday Market Open) Today, investors are scheduled to get the second major economic speech in as many days as the Federal Reserve chief will follow comments from President Trump that didn’t have much impact on the market. 

Later today, Fed Chairman Jerome Powell is scheduled to address Congress, and investors will probably want to tune in to see whether they can glean nuggets about how the central bank views the current state of the economy. That could provide clues about monetary policy and interest rate trajectory.

Inflation data out this morning didn’t seem to be too much of a shocker and likely won’t be enough alter the central bank’s current thinking on interest rates. In the first major economic data of the week, the headline consumer price index came in a bit higher than estimates but the core reading was in line with forecasts. The October CPI registered a 0.4% gain compared with the 0.3% rise expected in a Briefing.com consensus. But the core figure, which strips out volatile food and energy prices, came in as expected at 0.2%. 

It doesn’t appear that the inflation numbers change anything for the outlook for the Fed’s December rate setting meeting, and there wasn’t too much initial reaction in equities index futures or in the futures-market probability for the central bank to stand pat on interest rates at its next meeting. 

Ahead of the CPI data, investors appeared to be in a relatively somber mood after The Wall Street Journal reported that the United States and China are having trouble coming to an agreement over a partial trade deal because of a dispute over whether the United States will remove existing tariffs or just cancel duties set to go into effect in mid-December. 

It feels like we’ve seen this movie before. Even a partial deal seems elusive, and the back-and-forth headlines continue.

Investors Still Looking for Trade Clarity

Powell’s comments come a day after a widely anticipated lunchtime economic speech by President Trump on Tuesday, when the president ended up putting the “unch” in “lunch.” 

Investors hoping for clarity on whether, or by how much, the U.S. and China might roll tariffs back as part of the partial deal or how trade negotiations between the world’s two largest economies have been going didn’t seem to get much, leaving the Dow Jones Industrial Average to finish the day literally unchanged.

The other two main U.S. indices were able to squeeze out slight gains, with the S&P 500 Index  (SPX) and Nasdaq Composite (COMP) both hitting intraday highs and the COMP closing at a fresh record. It seems that investors were able to wring a bit of positive sentiment from Trump’s speech, namely that the first phase of a partial trade deal could come soon. 

But the records seem to be largely because stocks were already very near record levels to begin with, not because there was a huge push to buy equities. It seems like the market has priced in about as much optimism about a phase one trade deal and stronger-than-expected corporate earnings as it can without another catalyst to the upside. 

Looking Toward the Holidays

Still, that optimism has been enough to keep major selling at bay, leaving investors with enough positive spirit to keep stocks inching forward day by day. Indications in the futures market this morning suggest stocks could pull back today, but it still doesn’t seem like there is huge selling pressure. 

It could be a positive sign that even though stocks haven’t been making huge gains, investors don’t seem to be taking that as the market butting up against huge resistance. If that were the case, that might spark some selling. Rather, investors seem to be waiting for the next reason to buy. (That said, we’re keeping an eye on the 3100 level as possible resistance.)

That next catalyst could come in the form of holiday shopping. Black Friday isn’t that far away, and a strong showing by the U.S. consumer could potentially help spur another round of buying in the stock market. 

Consumers make up a huge portion of the domestic economy, and despite recent data, strength among shoppers has been a bright spot in the U.S. economy. That also means consumer spending has been a bastion within the global economy, where economies in Europe and Asia haven’t been as strong as that of the United States.

CHART OF THE DAY: Stocks Riding High: All three of the main U.S. indices (SPX-candlestick; COMP-blue line; $DJI-purple line) are around record highs, as this three-year chart shows. The recent optimism among equity investors has come on hopes that a partial trade deal between the U.S. and China will be inked soon. A stronger-than-expected corporate earnings season has also added to an accommodative Fed to boost investor spirits.Data sources: S&P Dow Jones Indices, Nasdaq. Chart source: The thinkorswim® platform from TD AmeritradeFor illustrative purposes only. Past performance does not guarantee future results.  

Eyes on Retail: Later this week, the market is scheduled to get a reading on retail sales for October. The report is typically pretty closely watched by investors and traders, but this month’s numbers could prove especially important. If you’ll recall, last time around the figures showed retail sales in September fell 0.3% to mark their first drop in seven months. With the problems in the nation’s manufacturing sector, investors are likely going to want to monitor the latest retail sales data to see if weakness in the retail sector could be shaping up to be a trend. After the last numbers came out, Briefing.com said, “The upward revisions for August cushioned some of the headline blow, yet the key takeaway from the report is that it highlights some relatively conservative consumer spending activity in September that will feed into the slowdown narrative building for the U.S. economy.” A Briefing.com consensus expects the latest numbers this week to show retail sales in October rising 0.2%. We’ll also have to see if the previous month gets revised. 

DIScretionary Spending:The market got a sign on Tuesday that could indicate strong consumer appetite for discretionary products, potentially boding well for holiday spending. Disney(DIS) officially launched its streaming service, and the company reportedly said demand was higher than expected. Despite technical issues, investors seemed pleased, boosting the stock by more than 1.3% on the day. Solid holiday spending would go a ways to reassure the market that the U.S. economy still remains on its feet. People often spend more money when they feel secure about their job and earnings prospects. On the other hand, if shoppers don’t spend as much, that could be a signal of worry on Main Street that could feed into jitters on Wall Street.

Enticing Labor:The labor market remains tight, leading to small businesses having a hard time finding qualified workers, which seems to be one of those “good” problems to have as it may be a reflection of a decent economy. Still, a lack of employees has created a bottleneck for new investment among small businesses, the National Federation of Independent Business said this week. “A new truck, or tractor, or crane is of no value if operators cannot be hired to operate them,” said NFIB Chief Economist William Dunkelberg. In a survey, 25% of small business owners said finding qualified labor was their top business problem, more than said taxes or regulations were their biggest issue. “Firms are likely to continue to offer improved compensation to attract and retain qualified workers because the only solution in the short term to an employee shortage is to raise compensation to attract new workers and to train less qualified employees,” the NFIB said. But the inflationary implications of these higher wages don’t seem to be problematic for the wider economy at the moment. “Owners are still not passing on higher compensation costs, with only 10% reporting higher selling prices,” according to the NFIB.

Good Trading,

JJ

@TDAJJKinahan

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This week's economic calendar. Source: Briefing.com
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Key Takeaways

  • Headline CPI comes in a bit hotter than expected

  • But core consumer inflation reading is as expected

  • Fed’s Powell scheduled to address Congress later today

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