Jerome Powell’s Heads to Capitol Hill on his 2nd Anniversary at the Fed

On Tuesday and Wednesday of this week, Fed Chair Powell will be giving two scheduled speeches. On Tuesday, he will be addressing the House Financial Services Committee. Though neither was originally scheduled to address the ongoing health crisis, centered on the coronavirus, you can be certain that the human and economic impact of a potential pandemic will be addressed. Away from the coronavirus outbreak and its potential to disrupt the economic landscape, our most recent corporate results and economic data releases here in the United States continue to deliver confirming and encouraging news for investors.

Last week’s economic calendar highlights:

On Monday of last week, the Institute For Supply Management released its widely followed ISM Mfg Index for January. The index reading for the month came in at 50.9 versus the Econoday consensus of 48.7. That was the highest reading since July, 2019 and significantly stronger than the upwardly revised December reading of 47.8. The strength of this reading was of particular importance given the improving balance of trade with China.

International trade figures for December (goods & services) reflected an uptick in the long-running deficit ($-48.9 B). Econoday consensus was $-48.2 B.

The EIA Petroleum Status Report for the week ending 1/31, released Wednesday, reflected a relatively tame crude oil market from a supply and demand standpoint. Crude inventories rose 3.5 M bbl while gasoline and distillate inventories both tightened fractionally.

The tight employment market is continuing to fuel a reversal in the decades-long deterioration in the LFPR. It is of particular interest to see that this reversal has materialized over the past four years.

Weekly Jobless Claims for the week of 2/1 provided yet another indication that the U.S. job market is firing on all cylinders. Weekly claims came in at 202 K versus the previous week’s revised reading of 217 K. The four-week moving average stands at a remarkable 211.75 K.

The combination of the Wednesday release of the ADP Report, in conjunction with the Friday morning release of the January Employment Report, underscored the obvious: the US economy is running at full employment. The ADP Employment Report for January came in at 291 K – roughly double the gains Econoday consensus was calling for. That reading did in some respects prepare the street for the January Employment Report – which was released on Friday morning.

In January, according to the Employment Report, the US economy added 225 K jobs. Econoday consensus was 160 K. The unemployment rate did tick up to 3.6% from 3.5%. Manufacturing payrolls slipped in the period by 12 K. However, the Labor Force Participation Rate (LFPR) ticked up to 63.4% from 63.2%.

The tightest labor market in a half-century has also provided lift for wages – particularly on the low end of the earnings scale. Average Hourly Earnings Y/Y stand at 3.1%.

Though all of this economic data continues to provide justification for a continued move higher in equity prices, equity prices are subject to more than economics, corporate earnings, and politics. There are other factors – often times existential factors – that can profoundly impact not only US equity prices but, more importantly, global market stability. The coronavirus potentially fits into that threat to markets.

It was precisely that – concern over the coronavirus – that fueled Friday’s sell-off. The coronavirus-centric concern that was being priced into markets on Friday had more to do with the perceived impact on global growth and China’s growth than anything else. Though markets remain in a confirmed uptrend, not unlike the previous Friday, weak price action leading into the weekend left investors a bit on edge.

On the day, Friday, markets moved sharply lower. The Dow gave up 277.26 points or .94%. The S&P 500 lost 18.07 points or .54%. The Nasdaq lost 51.64 points or .54%.  In spite of the sharp reversal in prices, volume on both the Nasdaq (-2.88%) and NYSE (-3.45%) slipped only fractionally. Including the rout that materialized on Friday, the broader market still had a great week with the Dow, S&P, and Nasdaq all posting sizable gains and in the process registering record highs.

This week’s economic calendar highlights:

No question, Fed Chair Powell’s testimony on Capitol Hill  this week will be the focal point for investors. He will be speaking on both Tuesday and Wednesday.

The Consumer Price index (CPI) for January is due out Thursday morning. One of the hallmarks of this longest-running bull market is that it has been accompanied by tame inflation. CPI M/M for December was 0.2%. Econoday is expecting a repeat of the reading on January. Y/Y, CPI is expected to come in at 2.4%. Importantly, the CPI reading – less food and energy – is expected to be 2.2%.

On Friday we receive the retail sales data for January.  We also receive the Industrial Production report for January. Econoday is expecting production M/M to contract by 0.3%, and manufacturing to contract by 0.2%. Capacity Utilization is expected to remain a healthy 76.8%.

Flickr photo: by Arend Vermazeren

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