Fed Chairman Powell Mastering Greenspan-speak; Some Investors Pleased, Others Confused

Fed Chairman Jerome Powell was grilled today by members of the Senate Banking Committee, and was asked by senator Pat Toomey of Pennsylvania about the flattening (or tightening) of the yield curve.

Toomey expressed his question to the Chairman, thusly:
“Some people are concerned that a flattening curve or inverted curve correlates with economic recession. Here’s my question: does a dramatic change in the shape of the yield curve in any way influence the trajectory you guys [the Fed] are on with respect to normalizing interest rates and the balance sheet?”

Quoting Chairman Powell's answer from the story:

“I think what really matters [about the yield curve] is what the neutral rate of interest is,” Powell said.

“And I think people look at the shape of the curve because they think that there’s a message in longer-run rates — which reflect many things — but that longer-run rates also tell us something, along with other things, about what the longer-run neutral rate is. That’s really, I think, why the slope of the yield curve matters. So I look directly at that.”

Literally, Powell did not answer the question, taking a page from the master of obscurity, mumbling, and ambiguity, former Fed Chairman, Alan Greenspan, who was notorious for answering questions and outlining positions in such an arcane and circuitous manner that it took the likes of William Safire to figure out just what he was saying, and even then, nobody was absolutely certain their analysis was correct.

Powell's rhetoric appeared to be pleasing to stock jockeys on Wall Street, who bid up prices a bit on the day, closing at its best level since June 14 (25,175.31). Perhaps Powell is embarking on a back-to-the-future nomenclature for the Federal Reserve, wherein the general public is to stand in awe of the special powers of the central bank and not question its motives.

That's how it was before and during Greenspan's reign as Chairman and maybe it might not be such a bad thing for the Fed to be less engaging and transparent today.

After all, nobody really understands what the Fed is talking about, including the Fed governors and presidents of the regional Fed banks, so why bother to try to explain it all to ordinary plebes, whose only wishes are to be left alone and offered a reasonable return on their investments?

Dow Jones Industrial Average July Scorecard:

Date	Close	Gain/Loss	Cum. G/L
7/2/18	24,307.18	+35.77	+35.77
7/3/18	24,174.82	-132.36	-96.59
7/5/18	24,345.44	+181.92	+85.33
7/6/18	24,456.48	+99.74	+185.07
7/9/18	24,776.59	+320.11	+505.18
7/10/18	24,919.66	+143.07	+648.25
7/11/18	24,700.45	-219.21	+429.04
7/12/18	24,924.89	+224.44	+653.48
7/13/18	25,019.41	+94.52	+748.00
7/16/18	25,064.36	+44.95	+792.95
7/17/18	25,119.89	+55.53	+848.48

At the Close, Tuesday, July 17, 2018:
Dow Jones Industrial Average: 25,119.89, +55.53 (+0.22%)
NASDAQ: 7,855.12, +49.40 (+0.63%)
S&P 500: 2,809.55, +11.12 (+0.40%)
NYSE Composite: 12,779.22, +30.44 (+0.24%)

Summer Trading Is Typically Slow; Precious Metals Hammered Of Late

Low volume and tight ranges on all the indices are telling the obvious. It's summer, many large traders are off to vacation spots, investors are sitting pat, and, despite it being the heart of second quarter earnings season, there simply isn't anything to get truly excited about, either on the bull or the bear side.

The Dow spent the entire session within a 90-point range, never falling more than 40 points from the pervious close, finishing the day with a modest gain. The Dow has finished higher eight of the 10 trading days in July.

There's more action in commodities of late, especially in the precious metals, which have been sliding for the past month after peaking short-term in mid-June. Silver slipped below $15 per ounce last week and has been trading in a tight range between $15.70 and $15.95. It appears that hopes for a rebound in real money have been dashed once again and gold also is trading at a one-year low, $1240 per troy ounce.

The price of crude took a hit today as well, with WTI finishing below $68 per barrel for the first time since June 25. The market is fully saturated and demand is flat, so prices should move down gradually for raw crude as well as gas at the pump.

This is really one of the more disinterested or distracted markets in some time. Likely, it's best to sit and wait for some indicator to signal direction.

Dow Jones Industrial Average July Scorecard:

Date	Close	Gain/Loss	Cum. G/L
7/2/18	24,307.18	+35.77	+35.77
7/3/18	24,174.82	-132.36	-96.59
7/5/18	24,345.44	+181.92	+85.33
7/6/18	24,456.48	+99.74	+185.07
7/9/18	24,776.59	+320.11	+505.18
7/10/18	24,919.66	+143.07	+648.25
7/11/18	24,700.45	-219.21	+429.04
7/12/18	24,924.89	+224.44	+653.48
7/13/18	25,019.41	+94.52	+748.00
7/16/18	25,064.36	+44.95	+792.95

At the Close, Monday, July 16, 2018:
Dow Jones Industrial Average: 25,064.36, +44.95 (+0.18%)
NASDAQ: 7,805.72, -20.26 (-0.26%)
S&P 500: 2,798.43, -2.88 (-0.10%)
NYSE Composite: 12,748.78, -20.73 (-0.16%)

Weekend Wrap: Stocks Got A Good Rip This Week For No Apparent Reason

In the grand scheme of things, this past week was a victory for normalcy bias.

Stocks gained.

Bonds held steady.

The government continued to operate as a complete farce.

Nothing really changed at all.

Even Money Daily, the grand encapsulator of financial media, began its commentary with the same opening line twice on consecutive days. For purposes only serving to further the case for degeneracy and laziness, the line was, "So much for summer doldrums."

Feel free to look it up, but, presently, the editors of Money Daily have no intention of clicking on any more links or checking anything for accuracy.

It's a shoot and miss environment. Six months from now, nothing that happened this week will be of any relevance.

For what it's worth, the Dow is up exactly 748 points in July. Numerologists may point out that this number reduces to 19, or 1, both of which are prime numbers. At least in the case of "1" the signal is for newness, birth, rebirth, a fresh start.

Sounds good.

Dow Jones Industrial Average July Scorecard:

Date	Close	Gain/Loss	Cum. G/L
7/2/18	24,307.18	+35.77	+35.77
7/3/18	24,174.82	-132.36	-96.59
7/5/18	24,345.44	+181.92	+85.33
7/6/18	24,456.48	+99.74	+185.07
7/9/18	24,776.59	+320.11	+505.18
7/10/18	24,919.66	+143.07	+648.25
7/11/18	24,700.45	-219.21	+429.04
7/12/18	24,924.89	+224.44	+653.48
7/13/18	25,019.41	+94.52	+748.00

At the Close, Friday, July 13, 2108:
Dow Jones Industrial Average: 25,019.41, +94.52 (+0.38%)
NASDAQ: 7,825.98, +2.06 (+0.03%)
S&P 500: 2,801.31, +3.02 (+0.11%)
NYSE Composite: 12,769.50, +8.04 (+0.06%)

For the week:
Dow: +562.93 (+2.30%)
NASDAQ: +137.59 (+1.79%)
S&P 500: +41.49 (1.50%)
NYSE Composite: +104.62 (+0.83%)

Stocks Gain, Dow Approaching Resistance Around 25,000

Stocks ramped higher on Thursday, taking back all of the losses from the prior day and advancing to its highest level since June 18. What lay ahead for the industrials is a trading areas that has proven to offer some resistance around and above 25,000.

In mid-June, at the tail end of a four-day rally, the Dow topped out at 25,322.31 (June 11), then stalled, sending the index tumbling more than 1200 points to 24,117.59 by June 27.

Will the pattern repeat? Obviously, it's too early to tell, but charts are suggesting that there will be some selling in this area. What may prompt any trading action are the emerging second quarter earnings reports, especially those on Friday from major banks.

Prior to Friday's open, the nation's largest bank by assets ($2.6 trillion), JP Morgan Chase (JPM) reported adjusted revenue of $28.39 billion, beating estimates of $27.34 billion and EPS of $2.29, also topping expectations of $2.2. Net income rose 18%, to $8.3 billion.

Citigroup (C) reported higher EPS, but missed on the revenue line. Shares were selling off slightly in pre-market trading.

Wells-Fargo (WFC) was down sharply prior to the opening bell after reporting a decline in net income applicable to common stock, which dipped to $4.79 billion, or 98 cents per share, in the quarter ended June 30, from $5.45 billion, or $1.08 per share a year ago. Analysts expected $1.12 per share.

Mixed results from the financial sector come as no surprise. Squeezed margins from the flattening yield curve has put pressure on bank stocks for some months. The financial sector has been one of the weakest through the second quarter and the pressure does not appear to be relenting any time soon.

Friday should be full of fireworks.

Dow Jones Industrial Average July Scorecard:

Date	Close	Gain/Loss	Cum. G/L
7/2/18	24,307.18	+35.77	+35.77
7/3/18	24,174.82	-132.36	-96.59
7/5/18	24,345.44	+181.92	+85.33
7/6/18	24,456.48	+99.74	+185.07
7/9/18	24,776.59	+320.11	+505.18
7/10/18	24,919.66	+143.07	+648.25
7/11/18	24,700.45	-219.21	+429.04
7/12/18	24,924.89	+224.44	+653.48

At the Close, Thursday, July 12, 2018:
Dow Jones Industrial Average: 24,924.89, +224.44 (+0.91%)
NASDAQ: 7,823.92, +107.30 (+1.39%)
S&P 500: 2,798.29, +24.27 (+0.87%)
NYSE Composite: 12,761.46, +79.87 (+0.63%)

Stock Selling Pressures Emerge As Bonds Present A Developing Skeptical Outlook

So much for summer doldrums.

Yes, that was the opening line of yesterday's post.

It's that kind of market, one that can turn on a dime, or a tweet, or, maybe even a look, a glance, a suggestion.

This is not for market neophytes, who will get skewered royally if they attempt to play and are not prepared to suffer small losses should positions prove unfavorable. Because small losses, left unaddressed, usually lead to larger losses, it's important to monitor all trades closely. Similarly, profits may be fleeting and momentary. It may be better to take short term gains under these conditions, than wait out months of bumps and grinds in expectation of sustained profits.

Current market conditions are strung out like an addict needing a fix. Any twitch can set it off, as evidenced on Wednesday, as short term euphoria faded into tight panic overnight.

Call it Trump-enomics, trade sabre-rattling, currency collapse, kind dollar, or whatever you like, what is underway is nothing less than a massive reordering of priorities. From individual well-being to international survival, nothing is off the table.

While stocks continue to zig-zag - the Dow fell once again into negative territory for the year - bonds seemingly know only one direction, toward the middle, as yield spreads on treasuries keep tightening.

Since the Fed has raised rates six times since December 2015, the yield on longer-dated maturities has not moved in tandem. In a growing, vibrant economy, yields on 10-year and 30-year bonds would be spiking higher in reaction to higher short-term rates, but presently, they are resistant. Thus, short-term rates are rising faster than longer-term, making it difficult for financial institutions to make money since they depend on the spread, i.e., borrowing short-term to lend long-term.

Simply put, it's tough to make much profit on a one percent (or less) margin.

This dynamic has and will continue to scare equity market participants, whose fear is that their investments will rise only very gradually, if at all. The longer-dated treasuries serve as a hedge against the inherent risk in stocks. Even though they may not keep pace with inflation, the risk of losing money is nearly nil.

There are, of course, many more forces at play, including devastated markets in Japan and Europe, which recently (and presently) toyed with negative interest rates, forcing all yields lower. Thus, the US yields look generous by comparison with limited risk exposure.

For a more detailed analysis of interest rates and the dangers of an inverted yield curve, Investopedia offers a reasonable explanation, here.

A simplified approach may be developing as a new norm: minimize risk, accept lower returns, preserve capital rather than seeking bold - and thus, risky - profits.

The bond market, which is much larger than the equity market, often serves as a lid on runaway speculation in stocks. Currently, the lid is being lowered, slowly, but steadily.

Dow Jones Industrial Average July Scorecard:

Date	Close	Gain/Loss	Cum. G/L
7/2/18	24,307.18	+35.77	+35.77
7/3/18	24,174.82	-132.36	-96.59
7/5/18	24,345.44	+181.92	+85.33
7/6/18	24,456.48	+99.74	+185.07
7/9/18	24,776.59	+320.11	+505.18
7/10/18	24,919.66	+143.07	+648.25
7/11/18	24,700.45	-219.21	+429.04

At the Close, Wednesday, July 11, 2018:
Dow Jones Industrial Average: 24,700.45, -219.21 (-0.88%)
NASDAQ: 7,716.61, -42.59 (-0.55%)
S&P 500: 2,774.02, -19.82 (-0.71%)
NYSE Composite: 12,681.59, -133.05 (-1.04%)