The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Alphabet’s results did not please shareholders and the stock sold off significantly in after hours trading last night. Today the stock dropped as much as 13% and pushed the S&P 500 lower. Today was the worst single day’s drop for Alphabet since it went public. Interestingly, the index still had good positive breadth today. Inside the index, gainers versus losers was about 4:1. It seems that Alphabet didn’t influence the wider market much. Anyway, the S&P spent the session down anywhere from 53 to 14 points, which isn’t so bad considering how important megacap tech is. Yields and crude both fell today so perhaps those markets kept the equity bears at bay.
Macro data today was interesting although it didn’t appear to influence the markets much. Here is a selection of what I found interesting.
Income and spending came in a bit light, that’s potentially concerning. Core PCE remains well north of the Fed’s 2% target and it ticked up this month. That’s not the direction anyone wants to see. Jobless data shows a very robust labor market, which is good for the economy but maybe not so good for rate doves. GDP is strong and ticking higher. Again that’s good for the economy but not good for rate doves.
Looking at all this data together, I think Alphabet pushed the true story of the day aside. This data suggests more Fed hiking is not only possible but probable. Just yesterday the Fed highlighted accumulating more data to make a proper policy decision. As if on cue, here’s more data… pertinent data. And it doesn’t suggest the Fed’s hiking is done.
Fed funds futures price peak rates in Sep of 2027, at 4.51% right now. That implies 2.5 more hikes. Is the stock market really expecting that? How will stocks react if we actually get 3 or 4 more hikes?
I’m thinking back to last week, when I highlighted these six factors as important to the stock market.
We’ve learned a bit more about these factors today. I didn’t think the net result was positive for stocks.
See you tomorrow.
-Mike
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