(Tuesday Market Open) Given the dearth of economic data and corporate news on the calendar this week coupled with the absence of volume, it appears that only two words seem to matter to the markets this week: Janet Yellen.
And she isn’t scheduled to even get near a podium until Friday morning at the Kansas City Fed’s annual economic confab in Jackson Hole, Wyo. It is there that she is expected to set the stage for how the market is going to move directionally in the coming months. Will there or will there not be a bump in interest rates?
Listen closely to “Designing Resilient Monetary Policy Frameworks for the Future” (or read her speech carefully, it will be available at federalreserve.gov when she begins talking), and parse each word and full sentence for even the slightest hint of when, or if, an interest-rate upturn is in the realm of real possibilities this year.
Futures traders don’t think so right now, no matter how hawkish the recent comments from Fed governors, according to the CME Group’s FedWatch tool. The probability of a hike in September is a mere 18% and only at 24.8% for one in November. The odds get a little better for December, but even then they’re only at 49.9%. They don’t even get into the 60%-plus range until June. Yes, June, at a 64.8% probability then.
If this sounds like déjà vu all over again, yes, the markets stood around like this last week ahead of the release of the Federal Open Market Committee’s minutes. It bears repeating that these are the dog days of summer.
In the meantime, the markets are yawning right alongside the pups. The arrows are pointing to a bounce back from yesterday’s nonevent but as some analysts have noted repeatedly this month, the low volume is hardly juicing movement on either path. There hasn’t been a directional move greater than 1% in more than a month.
The Dow Jones Industrials Average (DJIA) gave back 23.15 points to settle at 18,529.14, off 0.12%, and appears to be edging back in the early going. The S&P 500 (SPX) lost just one point, or 0.06%, to close at 2,182.64, maybe the lowest closing move in either direction ever.
The SPX energy sector fell 0.9% in tandem with a 3% dip in crude-oil prices as the West Texas Intermediate contracts closed at $47.05 a barrel and were tipping lower ahead of the open. Goldman Sachs analysts said yesterday that they are holding pat on their $45- to $50-range forecast on the per-barrel cost of oil through next summer. "While oil prices have rebounded sharply since Aug. 1, we believe this move has not been driven by incrementally better oil fundamentals, but instead by headlines around a potential output freeze as well as a sharp weakening of the dollar," Goldman analysts wrote, referring to speculation that the Organization of Petroleum Exporting Countries will agree to freeze production when it meets next month.
“Given the large uncertainty on the timing, magnitude and duration of such supply shifts, we continue to view oil as having to price near-term fundamentals with a lower emphasis on the more uncertain longer-term fundamentals,” Goldman analysts said.
The Nasdaq Composite Index (COMP6) bucked yesterday’s down trend, but barely, closing higher by 6.22 points, or 0.12%, to 5,244.60 and crawling to the upside early on today.
Treasury yields slipped to 1.54% on the 10-year notes while the VIX, the market’s so-called fear gauge, ticked up 8% to 12.27, still relatively low.
On the earnings front, shares of Best Buy (BBY) were in rally mode after the electronics retailer handily outpaced Wall Street’s projections—notching a 15th straight quarter to do so—amid higher sales of health and wearable electronics like smartwatches, BBY said. Excluding special items, BBY turned in a profit of $0.57 a share, well above the $0.43 a share consensus forecast by analysts reporting to Thomson Reuters. BBY shares jumped 16% on the news.
Does GDP Still Matter? That’s the question many world leaders, economists and intelligent market-type folks have been bantering about amid this period of what appears to be incredibly slow economic growth. But is it? Based solely on the Gross Domestic Product’s 1.2% three-month gain through June, it looks anemic. Federal Reserve Bank of Atlanta President Dennis Lockhart noted last week that GDP may not truly epitomize how most Americans are living. “If you look beyond the troubling headline GDP growth number for the second quarter and study real final sales, a more consistent picture of economic momentum emerges,” he said in a speech. Real people are spending real money on real things, he said.
Meanwhile, Bloomberg questions whether it’s time to look for a new measure of economic growth and many analysts say they expect global leaders to poke at the topic in Jackson Hole later this week. Generally speaking, GDP is calculated using consumer spending plus business investment plus government spending plus net exports (or exports minus imports). “In an age where $10 can buy one compact disc or a month of unlimited music streaming, it’s getting tougher to put a price on economic output,” the Bloomberg article said. “And as an aggregate measure that ignores distribution effects, GDP has masked rising inequalities….”
Some experts insist that the debate is simmering across the world because it doesn’t consider the modernization of the economy, like using digital pay instead of receipts, nor does it account for well-being measures for, say, an aging population that are different than they might be for Millennials.
Moreover, Bloomberg notes, there’s nothing better to replace it. Plus, there apparently is a high correlation between GDP and an on-the-ground measure of happiness, economists say. “We have this terrible measure that leaves a lot of things out—that’s the theory—but in practice, it turns out that countries with high levels of GDP are doing well on most of the things that people say really matters,” Justin Wolfers, an economics professor at the University of Michigan who closely watches consumers sentiment reports told the wire service. “This is one of those things that is broken in theory but it works in practice.”
The IRS is Looking at You Sharing Economy. That’s another modern measure that’s, well, tough to measure. Not only does the Federal Reserve want to include the growth and receipts of room sharing, ride sharing and other on-demand goods and services that consumers are employing and employed by to gauge GDP, so too does the IRS—for tax-collecting purposes. To that end, the IRS has teamed up with the National Taxpayer Advocate to “help people meet their tax-reporting responsibilities,” according to the IRS, which launched a web site for sharing-economy taxpayers. The Sharing Economy Resource Center is a go-to for those ringing up revenue in this gig economy to stay clear of side-stepping the IRS.
Apple Store No More. Ohhh don’t worry, that doesn’t mean Apple (AAPL) is doing away with its successful store concept. It’s only the “store” part that’s going away. Instead of the Apple Store, it will be Apple Union Square or Apple World Trade Center, according to The Verge. “The company has set out to reframe its retail locations as more than the place you go to buy an iPad or Mac. Now, the stores feature gigantic 6K-video screens, lush greenery, and some have ditched the traditional Genius Bar setup in favor of giving customers an area to just sit down and hang out,” The Verge reported.
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