(Thursday Market Open) There's plenty of intrigue today as investors wait for a bite of Apple’s (AAPL) earnings, the unveiling of a Republican tax plan, and the announcement of a new Fed chair.
Amid these potentially market-moving developments, investors also might want to steel themselves for tomorrow’s monthly payrolls report (see below). Additionally, the Bank of England just hiked interest rates for the first time in a decade. All told, it’s probably not the best time for a commercial interruption.
Before looking ahead, let’s check back at yesterday’s decision by the Fed to keep rates unchanged. In its post-meeting statement, the Fed strengthened its assessment of economic growth, noting that “economic activity has been rising at a solid rate,” despite the impact from hurricanes. The word, “solid,” replaced the Fed’s “moderate” language from its September statement. Inflation still remains “soft,” however, the Fed said.
Though few expected a rate hike yesterday, odds of a hike before the end of the year climbed above 98% in futures trading. The next meeting is Dec. 12-13.
The Fed could be back in the news today if President Trump makes his decision on a new Fed chair. As we noted yesterday, many Fed watchers are still betting that Fed Gov. Jerome Powell, the only Republican on the Fed board, could be Trump’s choice, according to published reports. Generally speaking, either Powell or Fed chair Janet Yellen would probably be a “safe” choice, meaning they’re both seen as likely to continue current policy.
Republicans are scheduled to present their tax plan at 11 a.m. ET today, and that could provide some intrigue and have an initial reaction in some sectors depending on which ones seem to be affected. Remember to be careful and not get sucked in on an emotional trade, because cooler heads may prevail and the plan faces further negotiation.
A rate hike this morning by the Bank of England didn’t come as a surprise, having been widely expected by many analysts. It’s just another sign that economies across the pond are improving, along with the recent decision by the European Central Bank (ECB) to pull back on its stimulus program. A healthy England and Europe tend to be good news for U.S. companies, especially those that depend on exports. Despite the rate hike, the British pound tumbled vs. the dollar, perhaps because the BOE signaled future hikes would be gradual.
Getting back to earnings, Apple takes the stage after today’s closing bell. Shares reached record highs this week before easing back a little by late Wednesday. It’s probably safe to say iPhone sales will get the bulk of the focus, especially since the recent introduction of the iPhone 8. We’ve heard reports of strong demand for that product despite some expectations that demand could ease as customers await the launch of the more expensive iPhone X later this week. Also worth tracking: The company’s performance in China, where it’s faced stiff competition recently.
Facebook’s (FB) report late Wednesday is still getting some buzz. The company beat analysts’ expectations on revenue and earnings, and increased daily active users by 50 million. Going into earnings, investors focused on the company’s ad revenue, which FB had warned last quarter might not be able to keep up recent pace. However, ad revenue rose 49% in Q3, better than the 47% gain in Q2. FB also seems to be making headway in emerging markets, an important development for a company that’s pretty much saturated the bigger Western countries
Tesla (TSLA) also reported after Wednesday’s close, but to less applause. Shares fell 5% in post-market trading after the company reported a bigger than expected quarterly loss. TSLA also pushed back timing on its Model 3 production reaching 5,000 a week to late Q1. Previously it had forecast that rate by the end of this year.
Other earnings to watch today include Alibaba (BABA) and Starbucks (SBUX).
In the markets Wednesday, so-called cyclical sectors once again got the bulk of buyers’ interest, with materials, energy, and financials all advancing. Defensive sectors like utilities and telecom came in last and second last on the day. Over the last month, info tech leads all sectors with gains of nearly 8%, while materials and financials also stand firm. Telecom is the worst performer by far (see chart), but consumer staples and energy also are in the red.
Get Ready for Jobs: After falling by 33,000 in September, there’s a chance that job growth might have roared back in October. Wall Street analysts’ consensus is for job creation of 300,000 during the month, according to Briefing.com. While not everyone on Wall Street is quite that optimistic, even if the report comes in well under 300,000 but above 200,000, it might add to already positive sentiment on the Street. A private jobs survey on Wednesday pegged growth at 235,000, and that seemed to help stocks after its release.
If the report indeed shows lofty job creation, it could support the theory that job growth sags following a big hurricane (or, in this case, two) and then pops up. That’s what happened in 2005 after Hurricane Katrina.
Hoping for a Raise? If you remember last month, average hourly earnings jumped a surprising 0.5%, lending support to some analysts’ claims that wages were finally catching up with jobs growth. At the time, we noted that many of the jobs lost during September were low-wage restaurant and drinking establishment positions, which might have had an outsized impact on wages.
October wage growth might not be quite as frothy, at least according to Wall Street’s projections for just 0.1% hourly wage gains. As always, check the mix of jobs gained and lost in the report’s small print. If restaurant jobs re-appeared in October, it could mean wages got pulled lower. Also, September didn’t see follow-through from recent reports that showed growth in construction and manufacturing positions, so the question is whether those come back in October. It’s possible construction might have gotten a boost due to re-building efforts, but remember, that could be temporary.
Oil Slips As U.S. Spigots Open: Crude oil futures got a visit from sellers on Wednesday, crumbling after briefly setting nine-month highs and trading above psychological resistance at $55 a barrel. It didn’t help that the U.S. Energy Information Administration reported record high daily U.S. exports, and that production surged back toward 2015 all-time records. Crude oil and gasoline drawdowns from U.S. stockpiles weren’t as big as analysts had expected, Bloomberg reported. It’s worth noting, too, that the near-record U.S. daily production above 9.5 million barrels a day closely tracks oil futures’ rise above $55, a sign that U.S. producers might be quickly responding to higher prices by injecting more product into the market.
Sift Through Sector Candidates
Use Stock Screener to narrow selections based on sectors. Log in to your account at tdameritrade.com > Research & Ideas > Screeners > Stocks.