The Market Today

Fed Unlikely to Address GameStop, Likely Quiet Decision

by Craig Dismuke, Dudley Carter


Concerned Consumers See Better Days Ahead: Consistent with most professional forecasts, the latest Conference Board report on consumer confidence showed the present situation index slipped from 87.2 to 84.4 in January, the lowest since May, while the expectations index improved from 87.0 to 92.5, a three-month high. Current indicators for business conditions and employment softened from December but were expected to improve over the next six months. Combined, the results nudged overall confidence up 2.2 points to 89.3.

Richmond Fed Index Falls Unexpectedly: The Richmond Fed’s Manufacturing Index fell unexpectedly in January to a six-month low of 14. In the current assessment, weaker orders and shipments offset improved employment. Looking ahead six months, orders and employment were expected to be stronger but overall company conditions dropped to a new low since May.

Openings Schools and Targeted Stimulus: Citing evidence that schools don’t contribute meaningfully to increased community transmission, the CDC said it believes, “with proper prevention efforts…we can keep transmission in schools and educational settings quite low.” President Biden’s top economic adviser, Brian Deese, said a full labor market recovery won’t occur if schools don’t re-open. Deese also said Congress should move “quickly” and “comprehensively” on more aid. Bank of America’s CEO noted any additional aid needs to be targeted towards the hardest-hit sectors. He also said that while inflation shouldn’t be a concern this year, it may well become one in 2022.

Restrictions Until Vaccine Rollout Ramps Up: The EU could approve the Oxford-AstraZeneca vaccine for emergency use this week as the two parties continued their quarrel. The EU said the company indicated it may not be able to meet its commitment while AstraZeneca blamed the bottleneck on the timing of the EU order. The Biden administration announced it would increase orders from Pfizer and Moderna and expects to be able to vaccinate 300 million Americans by the end of the summer. French drugmaker Sanofi agreed to give BioNTech/Pfizer access to a production facility to help make 125 million vaccine doses. Global cases crossed over 100 million Tuesday. The U.S. State Department said Americans should “seriously reconsider” travel abroad.


Risk-Off Tone Pushes 10-Year Treasury Yield to Lowest Since Democrats Won the Senate: Global markets reflected a risk-off mood Wednesday ahead of this afternoon’s Fed decision and earnings announcements. Mixed trading in Asia preceded widespread weakness across Europe that has dragged the Stoxx Europe 600 down 1.5%, on pace for its biggest decline since December 21. Germany’s DAX led losses after consumer confidence fell more than expected in February to its weakest level since June. S&P 500 futures were off by 1.1% at 7:15 a.m. CT and the 10-year Treasury yield was down 1.5 bps to 1.02%, a new low since Democrats won the Senate on January 5.

The more active pace followed a quiet Tuesday on Wall Street, where cyclical sectors continued to lag safer sectors and growth-focused tech stocks. The net of the divergent paths kept the major indices notably quiet and marginally weaker by the close. The S&P 500 and Nasdaq both edged lower by around 0.1% after starting the week with small gains and new records. The Dow slipped for a fourth day, down less than 0.1%, despite solid earnings from some key components. Citing benefits from pandemic disruptions, Microsoft, 3M, and Johnson & Johnson (before any vaccine benefit) all beat earnings expectations. Offsetting those gainers, American Express shares fell as revenue disappointed, in part because travel and entertainment spending fell 65% from a year ago (-69% YoY in 3Q). Treasury yields were lethargic, ending less than 0.5 bp from where they opened.


Fed Decision: We expect the Fed policy decision will be quiet today at 1:00 p.m. CT (Powell presser at 1:30 p.m.).  Apart from GameStop’s meteoric stock-price rise, little has changed since last month’s meeting at which they reworked their forward guidance.  They have also shown a convincing preference for holding asset purchases unchanged for now, including Powell’s recent comments that this “is not the time” to discuss tapering.

Investment in Equipment Remains Strong in Durable Goods Report: A 51.8% drop in nondefense aircraft orders prevented December’s durable goods orders report from meeting expectations for 1.0% growth, rising just 0.2% instead.  Excluding the volatile transportation categories, orders were actually stronger than expected, up 0.7% MoM.  In addition, November’s tally was revised up. The proxy for current-quarter business investment in equipment, core capital goods shipments, rose 0.5% slightly disappointing expectations.  However, the proxy for future activity was quite encouraging, beat expectations (+0.6%) while November’s tally was doubled (+0.5% to +1.0%).

Corporate Earnings: Apple, Tesla, and Facebook will all report after the bell today.

The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
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