Do most get lost in the minutia? Yesterday most were focused on the outcome of the FOMC meeting and the earnings release of three of the largest companies in the world.
Is this the proper focus? The second Trump era has begun and if one is confident about what it will bring (either good or bad), should one reconsider? We only know what we want and for a variety of reasons, one may or may not get it.
For example, many think the top priority is national debt. The government needs to get annual deficits down to a point where debt grows no faster than GDP. This would stabilize the situation, offering time to find longer term solutions.
But for such to occur, it will require some combination of spending cuts and revenue growth.
The impact of information technology is significant as it has eliminated the proverbial gatekeepers, organizations that once decided what the public will see, perhaps creating a crisis of confidence [phrase Jimmy Carter used to describe the psychology of American society in 1979] in established institutions and authorities.
The majority of Americans believe a major strategic thrust of the Trump Administration is to narrow the gap between modern government and the public. A pivotal question is whether or not the system can be reformed? Can the Administration restore the public’s trust in the institutions and the principles that sustain them?
The above statement is a lightning rod. However, most political scientists will accept the iron grip that yesterday’s leaders have waned. An argument can be made that the voters have demanded a new generation of leaders that espouse economic rather than cultural issues.
Circling back to today’s FOMC meeting, most will accept that the Federal Reserve has become very active, flexing its monetary muscles and itself became a major factor in how the economy and markets behaved, contributing to bubbles being formed and then figuring out how to recover from them.
No matter what Trump does, the odds are high that this year there may a collision of record high stock valuations, equity concentration, and persistently higher interest rates. How will this unfold?
Perhaps the only concrete statement to make is that no one knows. The collective wisdom of Wall Street and the Federal Reserve has been dogmatically wrong over the last four/five years.
History will tell us what did unfold and if past results are indicative of future results, Wall Street/The Federal Reserve really does not have a clue.
As widely expected, the FOMC held interest rates steady, pausing to assess the inflation outlook following a string of rate reductions last year. The Committee had lowered the overnight by 1% in the final months of 2024 to a range of 4.25% to 4.5%.
In its post meeting statement, the Federal Reserve commented “inflation remains somewhat elevated” but removed a reference to having made progress toward their 2% goal. The Committee also stated that “the unemployment has stabilized at a low level” and categorized the economy as “solid.”
Markets were “relatively” unmoved by the hawkish tweak in its statement. The “markets” are still suggesting the next rate cut may not occur until July.
After the close three of the largest companies released earnings. MSFT disappointed as growth is slowing in its cloud business sending shares lower by 4%. TSLA’s 4Q profits missed expectations initially sending shares down by over 4%. META exceeded profit forecasts but also fell about 4% as sales forecasts trails midpoint estimates.
However, at the time of this writing, META and TSLA are essentially unchanged, as Wall Street was encourage by their respective earnings calls. MSFT however is still about 4% lower.
What will AAPL state tonight?
Also released today is the initial estimates of 4Q GDP. The economy is expected to expand at a 2.6% annualized rate. Personal Consumption is forecasted to rise by 3.2% and the GDP price index to increase by 2.5%.
Last night the foreign markets were up. London was up 0.41%, Paris up 0.56% and Frankfurt up 0.33%. China was down 0.06%, Japan up 0.25% and Hang Seng up 0.14%.
Dow and NASDAQ futures are flat and up about 0.25%, respectively. The 10-year is up 7/32 to yield 4.50%.
