| Wednesday's Headlines 1. US markets rise into Fed decision, and then fade at the close 2. Tesla crushes earnings estimates as stock hits record highs 3. Microsoft shows its cloud muscles and beats expectations 4. What the Fed said that didn't sit well Markets Closed
 Markets Today U.S. markets see-sawed today going into and following the Fed's decision to hold interest rates at current levels. No one was expecting a change in rates, but the FOMC's tone on inflation may have given investors some pause. The DJIA gave up nearly all of its gains by the close after climbing 220 points at its highs. The S&P 500 couldn't hold its gains and closed slightly lower for the session. Beyond monetary policy, it was all about earnings today, and like a box of chocolates, you never know what you're gonna get. We have a recap of some of the higher-profile companies' results below, but suffice to say, the day belonged to Tesla and Microsoft, which both handily beat estimates and saw their shares spike in after-hours trading.
Let's get into it.
Headlines:
 Samuel Corum / Stringer
Fed Up With Inflation Today's announcement by Fed Chair Jay Powell sounded a lot like the one he made six weeks ago when the FOMC held its benchmark funds rate between 1.5% and 1.75%. That's where the Fed left it today, which surprised no one. But today's announcement contained what some described as frustration on the part of the Fed that inflation remains stubbornly low. The Fed likes inflation at or around 2%, but it has been below that for several quarters despite three interest rate cuts last year.
The Fed said as much in its statement today, "...On a 12‑month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed."
Low prices are good for consumers, and we all know how consumers have been holding the U.S. economy together for the past year. However, the Fed worries that low expectations will continue to keep inflation and, consequently, interest rates at below its preferred levels. That would give the Fed less flexibility to cut rates if and when the U.S. economy falls into a downturn. But the Fed also downgraded household spending to "moderate" from "strong", in its statement, which many have interpreted that the economy is not as strong as it was in 2019. That may have been what shook investors this afternoon as they began selling gains from earlier in the day.
The good news is that Powell left today's press conference essentially assuring investors that interest rates would remain low for 2020. For consumers with credit card debt, which is partially based off of the federal funds rate, that's a good thing. As our friends at The Balance have noted, APR rates on the credit cards they track (the major ones) have been trending lower.  And mortgage rates on a 30-year fixed have also been coming down, which has spurred on homebuyers.
chart courtesy FRED  The bad news is that the Fed is showing more concern than it has in recent months about the health of the consumer and the inability of companies and goods producers to raise prices. That could stifle the U.S. economy which is already having a hard time reaching 2% GDP growth. If rate cuts don't do the trick, what will?
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(chart courtesy YCHARTS)  Fashion company L Brands rose on news that its CEO is considering stepping down, and that it is also considering a sale of its Victoria's Secret brand. General Electric rose today after it beat earnings expectations. Consumer finance company Santander Consumer USA Holdings rose after it reported strong earnings, while investment banking consultancy firm Evercore rose after it announced substantial cost cuts.  Semiconductor firm, Xilinx, fell after it missed on revenue and issued disappointing guidance for its next quarter. It blamed a "perfect storm" of slower 5G investment and trade restrictions on its major customer Huawei. Natural gas companies continue to hurt as both EQT and Antero resources fell today. Oil and gas firm Hess fell on worse-than-expected earnings. Biotech firm, Moderna, which is working to combat the coronavirus, lost some of its recent gains. Word of the Day Adjusted earnings are the sum of earnings and increases in loss reserves, new business, deficiency reserves, deferred tax liabilities and capital gains from the previous time period to the current time period. Adjusted earnings provide a measurement of how current performance compares with performance in previous years.  Today in History January 29, 1997 Today in 1997, the U.S. Federal Reserve offered its first treasury inflation-protected security, or TIPS. TIPS are treasury bonds whose value rises along with the consumer price index, or CPI, a primary measure of inflation. This means that the bond's value will keep pace with inflation, making it a safe investment if you fear inflation will be high. As a tradeoff for this lower risk, TIPS offer a lower yield than normal treasury bonds of an equivalent duration. This creates a way to measure bond-buyers' inflation expectations, because TIPS yields will fall if people think inflation will be high, because people are willing to sacrifice more yield for inflation protection. This difference in yields is known as the "TIPS spread."
https://www.treasurydirect.gov/indiv/research/history/histtime/histtime_tips.htm
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Wednesday, January 29, 2020
Holding Here
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