Fed speak
The Fed held its first policy meeting of the year this past week and let me tell you, the markets were ecstatic at what they heard. The FOMC voted unanimously to keep rates unchanged, which was the consensus expectation. The real game changer here was the clear messaging from Fed Chairman Jerome Powell after the policy meeting: the Fed intends to be patient and consider economic conditions as it determines future interest rate and liquidity moves. Stocks rallied in a big way on this reassurance.
Moral of the story: This is the second time the Fed has given us confidence that it won’t determine policy with a blind eye toward economic data. But here’s the catch – if economic data holds up and current geopolitical risks get resolved (both sound like great things, right?), the Fed could start raising rates again before the end of the year.
All the jobs
Speaking of economic indicators, economists were expecting Friday’s jobs report to show monthly jobs increasing by 170k and unemployment holding steady at 3.9%. We actually added 304k new jobs but this big beat came with some downward revisions of prior numbers from November and December, bringing the three month average to 241k jobs (which btw is still really strong for the ninth year of an economic cycle). While the government shutdown didn’t seem to have an impact on this jobs number, it did impact employment statistics – the number of people working part-time because of economic reasons jumped 11% and unemployment inched higher to 4%.
Moral of the story: The employment market is a telling indicator of the economy – it shows whether companies are willing to hire and helps us gauge the spending power of the consumer. We’ve been concerned about an economic slowdown and the labor market shows no such signs. A big question then – what does this signal to the Fed about the pace of raising interest rates?
Earnings are here (part 3)
The market was flooded with earnings releases from almost 500 companies this week including big names like ExxonMobil, Blackstone, Apple, Facebook, Microsoft, and Amazon just to name a few. Amazon reported record holiday sales last year (raise your hand if you contributed to this, **insert hand raise emoji** you’re welcome Jeff Bezos) and guided to continued investments in expanding its business, I see both as positive sentiments toward the economic outlook. If Amazon, with all the data at its disposal, is positive on its outlook, who am I to disagree? So far, about 45% of the major companies have reported results and over 68% have reported results ahead of market expectations.
Moral of the story: Commentary from management teams continues to be reassuring and market reactions seem to be indicative of investors being overly pessimistic about the economic outlook for 2019.