WASHINGTON. U.S. stocks decided to rally Wednesday after Tuesday’s nastiness. Apple and Boeing numbers surprised investors. They reacted by bidding those stocks up bit time at the opening bell. Also interesting: markets were surprisingly positive Wednesday morning over all. Traders, investors and high-speed machines all waited, as usual, for latest Federal Reserve prognostications. But pre-Fed trading action proved unusually optimistic. Part of this may have been due to a phenomenon we’ve always suspected but have never had enough evidence to prove. Namely, the bigwigs and the cognoscenti already possess copies of those sacred words from the Fed.
That’s why, we think, they tend to start trading on the presumed news at Wednesday’s opening bell. That’s well in advance of the Fed’s public release. (It’s always due out at 2 p.m. ET.) It’s also well before plebians like us can read the news for ourselves.
As to each report itself, sometimes good news shows up. Sometimes not.
Wednesday’s news was good news.
Stocks exploded upward, with the Dow up well over 500 points before settling back a bit at the close.
Love and kisses from the Federal Reserve.
CNBC noted the Fed turnabout in a Tuesday afternoon release.
“The Federal Reserve opted not to raise interest rates during its policy meeting this week and pledged that future moves will be done patiently and with an eye toward how economic conditions unfold… the central bank voted unanimously to hold its policy rate in a range between 2.25 percent and 2.5 percent.
“The decision came along with a separate statement on the Fed’s balance sheet indicating that policymakers will consider adjusting the reduction of the central bank’s bond portfolio if conditions warrant… In a move that represented a divergence from policy of the past several years, the Fed dropped language that more rate hikes likely would be warranted – ‘further gradual increases,’ as stated after the December meeting – and said it was adopting a more cautious approach.”
Of course, President Trump had nothing to do with the Fed’s move…
Wednesday’s Fed remarks appeared to back off from the central bank’s previous “shock and awe” approach to interest rates and bond inventory reduction. Previously, they had busied themselves jacking up interest rates while shedding the central bank’s longtime QE bond inventory holdings at an alarming rate. The verdict from Mr. Market was an extended, ruinous 3,000 point December Dow downdraft. That hube collapse added a colossal, negative coda to the swan dive Mr. Market took throughout the entirety of autumn 2018. The December crash hammered nearly everyone, even the professionals. It assured that 2018 would be a losing year for just about anyone who invested in common stocks.
In his remarks, Fed Chair Jerome Powell pointedly noted that the central bank’s latest decision hadn’t been influenced by President Trump’s jawboning, but that’s a standard response for any Washington bureaucrat. If Trump hadn’t used the President’s traditional “bully pulpit,” the central bankers might not have felt enough public pressure to budge, even as Mr. Market screamed at them with remarkable clarity.
So yesterday’s about-face from the Fed – the closest you’ll get to an apology from them – helped get the Mr. Market’s January thaw back on track, even as the temperature in Metro D.C. plummeted to the low single digits.
Inconclusive Thursday morning trading
Thus far, market averages are trying to continue their recovery, although the Dow isn’t bothering to participate. Microsoft reported a decent profit, but sales were off a bit and the company issued guarded guidance. The apparent cause: a shortage of Intel processor chips. This dampened sales of PCs and other devices running Windows. Hence, the connection. Hey, I thought no one was buying PCs any more.
At any rate, Microsoft got hit this morning. And, with its heavy weighting in the DJI, it’s holding that average back Thursday morning.
As we write this column, roughly 10:30 a.m. ET, the Dow is off about 62 points, a roughly 0.25 percent loss thus far. But the broad-based S&P 500 is forging ahead, up 78.47 points for a 1.1 percent gain. And the tech-heavy NASDAQ is up 15.3 points for a current gain of just under 0.6 percent.
Of course, as we’ve seen for months now, Mr. Market’s mileage may vary intraday. He could run off in a snit again and we could close down. But thus far the stars are aligning. Now, if the Rams could just win the Super Bowl this Sunday, we might look ahead to a generally swell 2019.
Besides the Fed news, Apple and Boeing kicked the Dow into high gear Tuesday
The big surprise Wednesday was the market’s reaction to Apple’s “anemic” earnings report. “Anemic” in the sense that, while they beat their numbers handily as they usually do, the company’s earnings trajectory was clearly flattened by the severe drop off in iPhone sales during their biggest quarter. This was something the company had warned about late last year. That news caused its shares to take an epic pounding for weeks.
But, you don’t know what you don’t know. We predicted that Apple’s stocks (trading symbol: AAPL) would take its usual post-earnings swan dive. But, mirabile dictu, it did not. Traders and analysts decided that the numbers were not bad after all, and were probably only temporary. So AAPL shares rallied hard Wednesday, up over 8 percent at one point.
Also influencing Wednesday action, giant aerospace manufacturer Boeing (BA) gobsmacked everyone on the Street with a stratospheric quarterly earnings report. Boeing shares took off like a Space-X rocket for a $25-per share gain not long after the opening bell. They held much of that gain into Wednesday’s close.
We don’t know, of course, where Apple, Boeing or anything else might end up Thursday after the fearsome rally in their shares. As we write this, Apple is once again posting a gain of over 2 percent. Boeing, however, is off just under 1 percent. But that’s chump change after Wednesday’s warp speed advance.
— Headline image: U.S. Federal Reserve Bank HQ, Washington, D.C. (Federal government photo, public domain)