Ready, Set: Fed Inaction! Upside-Down Tuesday, Boeing's Big Drag
Let's see why Tuesday was up but not great under the surface, why durable-consumer goods orders took a hit, and ... why not to bet on a rate cut today,
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
The Federal Reserve's Federal Open Market Committee will release its first official policy statement of 2025 today as the culmination of a two-day meeting that began on Tuesday. This policy statement, which is an eight-times-a-year event, will not be accompanied by the committee's economic projections that were just done in December and are done quarterly. That's where you'll find the infamous "do plot" so at least there will be none of that nonsense for investors and traders to contend with.
Traders and investors will have to contend with the Fed Chair's press conference, which trails the release of the policy statement by half an hour and often packs as much if not more market impact than the statement itself. As the page of the calendar turns, so do the policy voting rights of those who comprise the committee. As a reminder, permanent voting rights are afforded to members of the Fed's Board of Governors as well as the President of the Fed's regional New York district, which is currently John "Lightning" Williams.
The final four slots among the voting membership of the committee are rotated annually among the other 11 regional Fed district presidents. Losing voting rights for 2025 are Richmond (Tom Barkin, pragmatist), Atlanta (Raphael Bostic, pragmatist), Mary Daly, dove), and Cleveland (Beth Hammack... unproven after serving just half a year but showing great promise as a potential hawk). Gaining voting rights for 2025 are Boston (Susan Collins, pragmatist), Chicago (Austan Goolsbee, perma-dove), St. Louis (Alberto Musalem, pragmatist), and Kansas City (Jeffrey Schmid, pragmatist).
Several of these committee members appear to be pragmatic, but have not spoken publicly as often as some of their peers or their predecessors and will be new to the voting process. They could be unpredictable, so it is not easy to accurately label them nor their monetary ideology. I guess we'll find out soon enough. Musalem replaced the wildly erratic James Bullard in St. Louis, and Schmid replaced the famously hawkish Esther George in Kansas City.
What Happens This Afternoon
I think we all pretty much understand that the FOMC will be unable to take action on the Fed Funds Rate this afternoon. At least statistically, economic growth appears to be much better than anyone expected, despite the fact that finding someone outside of academic economics who thinks the economy is strong would be difficult. Labor markets have waffled throughout 2023 and 2024 without actually falling apart. That said, the accuracy and authenticity of any labor market data released by the Bureau of Labor Statistics has been a huge unknown and a sticking point over that same time-frame as the adjustment models used are known to be deeply flawed.
Then there is consumer-level inflation. The bugaboo that bottomed last September without ever reaching the Fed's target and has been in re-acceleration mode ever since. The FOMC quite foolishly cut its target for the Fed Funds rate by an oversized half-percentage point at the September 2024 meeting, which may or may not have been politically motivated, as there was no justification for that move. This large cut coincided with the bottom in consumer-level inflation, which makes sense and probably could have been projected by a freshman year economics student. The committee has reduced that target range to the policy rate by an additional half point since.
Now, the committee is in quandary. The new president who, technically has no say in the matter, has been vocal about maintaining the already in-place downward trajectory for short-term interest rates, but the economic environment really is not right for a continuance of policy direction that was too aggressive in the first place. Powell, who was appointed to the top job by this president, but has not historically gotten along well with him, will have to tap dance this afternoon in the press conference and try to dodge leaning in either direction as all is unknown for now.
Fed Funds Futures
Fed Funds futures markets trading in Chicago are currently pricing in a 100% probability for the FOMC to take no action on short-term rates this afternoon. A next quarter-point rate cut is currently priced in (75% probability) for June 18, with a second quarter-point rate cut for 2025 priced in (58% likelihood) for late October. There are currently no markets for a price hike at any point until June of 2026.
Carry on My Wayward Son
Masquerading as a man with a reason
May charade is the event of the season
And if I claim to be a wise man
Well, it surely means that I don't know
- Kerry Livgren (Kansas), 1976
Marketplace
Monday was a "down" day that really did not look so awful beneath the surface, but Tuesday was quite the opposite. Tuesday was an "up" day that really did not look so hot beneath the surface. The tech sector, especially the semiconductors, recovered a significant portion of their DeepSeek-related losses on Tuesday. The Nasdaq Composite gained 2.03% for the session as the S&P 500 recaptured 0.92%. The Dow Transports ran the other way, giving up 0.92%.
But only three of the 11 S&P sector-select SPDR exchange-traded funds managed to close out Tuesday in the green, easily led by Technology XLK at +2.67%. Within tech, the Philadelphia Semiconductor Index gained just 1.11%, but the Dow Jones U.S. Semiconductor Index, which supposedly measures the same activity, was up a much more robust 4.99%. Nvidia NVDA led the industry winners at +8.93%, followed by Taiwan Semiconductor TSM, and Marvell Technology MRVL. Those two gained 5.25% and 3.54% respectively.
Of the eight sector SPDRs that closed in the red, three surrendered at least 1%. Additionally, all three of those were sectors seen as defensive in character, as the Staples XLP and Utilities XLU led the beat-down.
On Tuesday, losers beat winners by a 5-to-4 margin at the NYSE and by just a smidgen at the Nasdaq. Advancing volume took a 48.3% share of composite NYSE-listed trade, but an impressive 63.3% share of composite Nasdaq-listed trade. Is that meaningful? Probably not. Especially because aggregate trading volume dropped off sharply on a day over day basis across the listings of both of New York's major equity exchanges.
December Durable Goods Orders
Durable consumer goods orders were awful at the headline, thanks to the debacle and lack of deliveries at Boeing BA. Not including transportation, the number returned to month-over-month growth after contracting in November and what really matters -- core capital goods orders -- were strong for a second month in a row. That's a positive for U.S. business, but one would not know that without sifting through the numbers.
Consumer ... Insecurity
January consumer confidence sagged unexpectedly from December. Those feeling that jobs were plentiful fell to a four-month low, while those feeling that jobs were hard to get increased to a three-month high. Here's where the survey gets interesting. Confidence ebbed for those under the age of 55, while there was a slight increase for older folks. That's not so unusual. This is: Confidence dropped fairly significantly for households earning $125,000 or more per year, while gains in confidence were made for households making less.
Maybe They're Nuts?
According to data tracking services, there were more than a million downloads of DeepSeek's AI assistant app on Android devices in the U.S. from Jan. 21, and more than 445,000 of those downloads came between Jan. 25 and Jan, 27. Android users make up 45% of U.S. smartphone customers. Users of Apple's AAPL iOS make up 54.7% of smartphone customers. That makes us wonder just how many (2 million-plus?) downloads there actually were.
In the meantime, the U.S. Navy issued a warning to all members to avoid using the app in any capacity due to "potential security and ethical concerns." The Navy warned against using DeepSeek for either professional or personal purposes. I can't imagine the rest of the Department of Defense will be very far behind. Kind of makes me wonder, for the folks who immediately download barely understood apps ahead of learning more ... just what are you thinking?
Economics (All Times Eastern)
07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 7.02%.
07:00 - MBA Mortgage Applications (Weekly): Last 0.1% w/w.
08:30 - Goods Trade Balance (Dec): Last $-102.86B.
08:30 - Wholesale Inventories (Dec): Expecting 0.1% m/m, Last -0.2% m/m.
10:30 - Oil Inventories (Weekly): Last -1.017M.
10:30 - Gasoline Stocks (Weekly): Last +2.332M.
The Fed (All Times Eastern)
2:00 p.m. - FOMC Policy Decision.
2:30 - FOMC Press Conference.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: ASML (6.73), DHR (2.16), GD (4.02), NSC (2.94), TMUS (2.35)
After the Close: IBM (3.77), LRCX (.88), META (6.73), MSFT (3.13), NOW (3.66), TSLA (.77), URI (11.67), WM (1.80)
At the time of publication, Guilfoyle was long GD, MSFT, NVDA equity.
