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Shot across the bow.
Premarket futures were flat when they popped higher on cool PPI data (2.3% vs 2.5% est & 2.7% prior revised from 2.6%). The S&P 500 opened about +15 points. The index slumped down to flat within 30 minutes and tried to return to the opening levels when a source in the White House leaked a story that President Trump was going to fire Fed Chairman Jerome Powell shortly. The market dropped quickly on that news and the index was -40 points when it bounced. In a matter of minutes, President Trump was answering questions from the press and stating that it was very unlikely that he would fire Powell but that he would not rule anything out. Markets recovered fairly quickly, to levels about where we were in the morning. The tape inched higher from there, later in the day. Yields ended up mostly lower in the belly of the curve. Fed cut expectations for 2025 climbed a bit to 46 bips.
Quarterly reports continue to come in and the results continue to please, although they’re not wowing the broader market yet. 17 S&P 500 companies have reported already and all 17 beat their consensus expectations. That’s not saying much but we can conclude that companies are performing acceptably so far. If this quarter’s results won’t knock our socks off, what will we collectively conclude if the vast majority of companies beat expectations? I think it will draw capital in. We probably won’t get surges to the upside but the drumbeat of good-enough results will penetrate investor thinking and the bullish trend will continue.
Of course, tape bombs like firing Powell or tariff-talk 2.0, or bombing Iran, or whatever, will always trigger risk-off capital flows. I can’t imagine what’s around the corner next. Anyway, the road will be bumpy but it will probably lead higher.
There’s always the chance that a tape bomb *isn’t* just a momentary slap to the face. There’s a chance that *some* future announcement actually merits a true risk-off environment. It feels like the White House is playing with fire and there’s a chance that the economy will eventually suffer. If something happens that triggers a recession, the bull market will become a bear.
And everyone, especially the dip-buyers, will suffer.
The situation is odd. The trends are constructive. The economies are healthy. The mood is positive. The President could wreck it all in a moment’s notice, and doesn’t seem too concerned about that possibility.
I wonder if this is the environment until the tariff situations are resolved….
Or is this the environment for the rest of the term of the President?
See you tomorrow.
-Mike
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