U.S. markets opened higher on Thursday as investors cheered the Fed’s announcement that it will keep rates low. (Do we really EVER expect to raise while Joe Biden is in office?) Meanwhile, earnings from key tech companies came in strong and this is helping to fuel bullish sentiment even more with the U.S. futures markets higher. Nonetheless, GDP data and jobless claims data came in slightly weaker than expected.
The Federal Open Market Committee, the institution that sets Fed’s monetary policy, announced on Wednesday that it will keep interest rates near-zero, in hopes of keeping the economy growth.
At this point, the Fed is facing some serious risks: the whole damned if you do, damned if you don’t kind of risk.
if the fed pulls back, it would likely risk popping this stock bubble–especially now that the Biden administration is introducing taxes that would hit investors’ profits.
So, what’s a policy maker to do? Double down on low rates, of course. The problem is: that, once again, fuels the bubble by pushing investors further and further out on the risk curve.
I don’t want to give false hopes….
but, whether or not Biden’s ambitious tax proposal could actually get through Congress is totally debatable. (Let’s hope it doesn’t see the light of day because the double negative of a Fed pull back–combined with higher taxes–would spell DISASTER for markets.)
In the morning market, the S&P 500 jumped 0.72%, while the Dow Jones Industrial Average increased 0.4% and Nasdaq-100 futures jumped 0.89%.
Better-than-expected Tech Earnings Reports Fuels Optimism
The tech sector is reporting some terrific–even historic–earnings.
Apple reported a net income of $23.6 billion, compared to $11.2 billion from the previous quarter. The company also announced it would raise its dividend to 7% and put a further $90 billion in stock buybacks. Strong earnings are a result of a significant increase in sales of Apple products, due to more people looking for devices to work from home.
Facebook’s first-quarter net income also (nearly) doubled to $9.5 billion, compared to the $4.9 billion net income in the previous quarter. However, results in the second quarter are expected to slow. Facebook is facing the challenge of Apple’s Monday iOS update which would require users to manually opt in to add tracking. Without add tacking, Facebook advertising (a key source of the company’s revenue) will likely be less valuable to companies.
Jobless claims Worse than Predicted
This number doesn’t surprise me. I question whether we’ll really seem much of a recovery in the job market when unemployment benefits are so plentiful:
Weekly jobless claims showed that 553,000, people filed for unemployment benefits in the last week. That’s slightly more than the 545,000 that analysts predicted. The number is an improvement over the data from the prior week, upwardly revised to 566,000. Nonetheless, there are more than 16.5 million Americans still receiving some form of unemployment benefit.
GDP numbers came in at 6.4%, falling short of the expected 6.5%.
Biden’s Infrastructure Push Boosts Caterpillar inc
Shares of Caterpillar Inc are in focus today. The company released its first-quarter report on Thursday, reporting an adjusted profit of $2.87 per share, compared with $1.65 in the last quarter.
The construction equipment manufacturer is expected to benefit from Joe Biden’s massive $2.3 trillion infrastructure program.
Nokia leads European markets
Overseas, European stocks spiked thanks to strong reports from Nokia, Unilever, and Royal Dutch Shell. The Stoxx Europe 600 rose 0.5%, with Nokia in the lead, up 13% jump.