foxex: Crosscurrents and Conflicting Signals

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Tuesday's Headlines

1. Markets Stall on Fed's Messaging, and Musk's Tweets get the SEC's Ire

Markets Close

Dow
26,057.98 -0.13%

S&P
2,793.90 -0.08%

Nasdaq
7,549.30 -0.07%

VIX
15.15 +2.02%

INV Anxiety Index
101.44 Neutral

US 10-Yr Yield
2.636 -1.38%

source: Fred Dufour / AFP Getty Images

Markets Meander on Fed Speak

Crosscurrents and conflicting signals...that's how Fed Chair Jerome Powell described the U.S. economy in testimony to Congress today:

"...While we view current economic conditions as healthy and the economic outlook as favorable, over the past few months we have seen some crosscurrents and conflicting signals. Financial markets became more volatile toward year-end, and financial conditions are now less supportive of growth than they were earlier last year. Growth has slowed in some major foreign economies, particularly China and Europe. And uncertainty is elevated around several unresolved government policy issues, including Brexit and ongoing trade negotiations."

Why it Matters

The Fed moves markets...let's face it. That's not its intention or mandate, but monetary policy does impact the stock market here in the U.S. and around the world. The Fed has promised patience, which has mollified the markets and helped spur an 18% rally in the S&P 500 since Christmas. Today's remarks by Powell indicate a level of concern we have not yet seen from the Fed. The issues Powell brought up are legitimate. Growth is slowing around the world and there is a lot of uncertainty around Brexit and the trade negotiations between the U.S. and China.

(See James's Chart of the Day below on what happened to the British Pound given recent Brexit developments.)

While all of that is very real, nothing moved the markets like the Fed promising patience in early January. Will its patience eventually turn into an actual rate cut, as many pundits are speculating after today's comments? According to the CME Group's FedWatch, there is only a 2.6% chance the Fed will raise rates at its meeting in March.

Talk about conflicting signals.

Elon Musk Tweets Himself Back into Trouble

It was only a matter of time, but Elon Musk has found himself in legal hot water again, as the SEC on Monday asked a federal court to find Musk in contempt for violating a settlement agreement reached in October.

At issue, a Musk tweet from February 20th where he said that Tesla would build 500,000 cars this year. The company had told investors earlier this year it would only produce about 400,000 cars in 2019. Musk had not received Tesla's approval to send his tweet, allegedly violating the agreement he signed with the SEC in August.

And here's the recent tweet that reignited the legal flames:

Why it Matters

Musk corrected himself. But he had allegedly provided inaccurate information about his company and violated his agreement with the Securities and Exchange Commission to refrain from using social media without approval. The former is a serious offense that could be construed as misleading investors. The latter is not a crime per se, but part of Musk's $20 million settlement with the SEC last fall was agreeing to have his tweets about company information reviewed by Tesla's general counsel prior to sending.

Interestingly, Tesla general counsel Dane Butswinkas, resigned one day after the CEO claimed that 500,000 cars would be made this year.

Musk responded to the SEC's court filing within a couple of hours. The entrepreneur, who once sarcastically called the agency the "Shortseller Enrichment Commission," proclaimed his innocence and expressed his faith in the U.S. justice system.

"SEC forgot to read Tesla earnings transcript, which clearly states 350k to 500k. How embarrassing ..." He then added in another Tweet that he has "great respect for judges." "It's not perfect, but, in general, we should be very glad of the U.S. justice system."

If you are a Tesla (TSLA) shareholder, none of this is very amusing. The stock is down 15% in the past year.

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Fidelity Investments
Interactive Brokers
Charles Schwab
TradeStation
TD Ameritrade

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Chart of the Day: British Pound Rallies to New Highs on Hopes for Brexit Delay

On Tuesday, the British pound rallied to its highest level against the euro since May 2017, and its highest level against the U.S. dollar since September 2018. This sterling breakout was prompted by a statement from embattled UK Prime Minister Theresa May to British Members of Parliament promising the possibility of delaying Brexit. May's new plan to buy time amid the massive political chaos surrounding the UK's proposed departure from the European Union offered hope to a beleaguered pound. Widely considered a concession, the PM's plan provides Parliament with the option of ruling out a "no-deal" Brexit and delaying EU-departure (currently slated for March 29, Brexit Day). Earlier, the opposing Labour Party said that it is willing to back another public Brexit referendum.

The potential for delaying Brexit and avoiding a no-deal Brexit also helped cut the EUR/GBP down to 0.8562 on Tuesday, a 21-month low. That also pushed the exchange rate below a key support level around 0.8620. Since the pound is the second currency in the EUR/GBP currency pair, any move down for EUR/GBP is equivalent to a move up for the British pound versus the euro. As Theresa May's new parliamentary votes and Brexit Day approach, sterling-based currency pairs are likely to see even more Brexit-driven volatility.