Market Remains on Tenterhooks as Parade of Fed Speakers Continues

Even though last week’s Fed meeting ended without a rate hike, Fed Chair Janet Yellen and company remain center stage here in the final days of the quarter.

Fed speakers dominated the news cycle on Wednesday, but the parade isn’t over. Yellen is to take part in a video conference at 4 p.m. ET, and several Fed presidents will be speaking at other forums, including Philadelphia Fed President Patrick Harker and Atlanta Fed President Dennis Lockhart. Often, Fed presidents can move the markets with what they say, so investors should remain on their toes for any possible impact from these speeches.

So what’s the takeaway from Wednesday’s Fed speakers? Nothing too scary. Here’s a quick roundup of what they said:

Late Wednesday, Cleveland Fed President Loretta Mester, one of the three dissenters at last week’s meeting who voted for an interest rate hike, said that it’s appropriate to raise interest rates and that the economy is resilient enough to handle it, according to media reports. She also warned that waiting too long could tighten the labor market and cause price pressures to increase, forcing the Fed to raise rates too quickly, which could potentially lead to recession.

Minneapolis Fed President Neel Kashkari and Chicago Fed President Charles Evans, who also spoke Wednesday, sounded far more dovish on rates, according to media reports. Kashkari said he doesn’t see signs of inflationary pressures even with “healthy” jobs growth. Evans said raising rates could make it hard for the Fed to hit its inflation target. Meanwhile, the boss of the bank, Yellen, said there’s no fixed timetable for raising rates, but warned about the danger of letting the economy “overheat.”

In the wake of all these proclamations from Fed officials, chances for a December rate hike reached approximately 53%, according to futures action at the CME Group. That’s slightly under where it was last week. And despite all these Fed speakers being on the loose, market volatility remains subdued, with the VIX index recently at a low level near 12.5. One possible source of new volatility could be the election, but that remains to be seen.

It’s not official earnings season yet, but earnings from some key companies are starting to trickle in. PepsciCo (PEP) reported fiscal third-quarter adjusted earnings of $1.40 a share, beating analysts' forecasts of $1.32. Revenue in the quarter fell 2% to $16.03 billion. The stock rose 2.5% in premarket trading. Earnings are also expected Thursday from ConAgra Foods Inc CAG and Costco Wholesale Corporation COST. Those numbers from COST are important to watch for what they may say about consumer behavior over the last several months, especially because there’s a lot of doubt about retail chains as we head into earnings season.

Yesterday’s late rally in the stock market got its spark from OPEC, which agreed Wednesday to some sort of oil production cut, details of which aren’t fully worked out yet. Basically, OPEC members agreed now to agree later on a cut, which would be the first since 2008. It looked like a nice end-of-the-quarter gift for the U.S. energy sector, which jumped 4% Wednesday on rising oil prices and is now up nearly 10% year to date. That easily outpaces the overall S&P 500 Index (SPX), which is up about 6% year to date through Wednesday.

In all, it’s quite a turn-around for the energy sector from the double-digit losses it posted early in the year, but projected Q3 earnings for S&P 500 energy companies still look like they might be woeful, with S&P Global projecting a 65% decline year over year. So far in 2016, only telecommunications services, utilities, and information technology have outpaced energy in sector performance.

The government delivered its final read on U.S. Q2 Gross Domestic Product (GDP) growth early Thursday, and the figure of 1.4% was above Wall Street’s consensus estimate of 1.2% and the prior estimate of 1.1%. But with the final estimate not hugely different from expectations, that data isn’t likely to affect the market much today. Weekly jobless claims of 254,000, also reported early Thursday, remained low and a bit below analysts’ expectations,

The SPX closed Wednesday just above its 50-day moving average, which had stood around 2168 earlier in the session. From a technical perspective, that could be seen as a bullish sign (see below). There’s further resistance now at 2177, a technical level the market tested last week before faltering. If the SPX pushes through 2177, it could set up a test of psychological resistance at the big round figure of 2200, which the SPX hasn’t yet achieved. Support is in the 2150 area.

On the Sidelines: If it seems we haven’t heard so much lately about big companies buying back shares of their stocks, that’s because they’re not, at least not as much as they were earlier this year or last year. Stock buybacks, or share repurchases, by S&P 500 companies totaled $127.5 billion in Q2, a 21% decrease from the $161.4 billion reported in Q1 and a 3.1% decrease from the $131.6 billion reported in Q2 of 2015, S&P Global said in a press release Wednesday.

Reduced share counts tend to boost earnings per share, so the slide in buybacks could be worth watching for any possible impact on Q3 earnings. However, for the 10th consecutive quarter, more than 20% of the S&P 500’s constituents reduced their year-over-year diluted share count by at least 4%, therefore boosting their earnings-per-share (EPS) by at least 4%, S&P Global said. And the ability of companies to increase buybacks remains high, as cash is at a record level and money remains cheap and easy.

“However, the cessation of momentum after Q1 2016 may indicate that companies have not increased planned buybacks and rearranged expenditures to support their shares through the end of the fiscal period,” said Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices. “Third quarter prices are running 2.2% ahead of the second quarter (and 6.7% ahead of Q3 2015); increased expenditures may be needed to cover the higher share prices or risk diluting EPS.”

No Consumer Revival Seen in Durable Goods: The rolling tide of consumer-related economic data seems endless, and earlier this month some of the numbers didn’t look so healthy, with retail sales, for instance, coming in below expectations and dropping from July. August durable goods reported Wednesday by the U.S. Census Bureau didn’t exactly reverse the recent trend, coming in flat and pointing to continued softness in the manufacturing space, analysts said. But the number was certainly better than Wall Street’s consensus for a decline of 1.9%, so the news wasn’t a total washout. On the other hand, orders for long-lasting goods were revised lower in July, with a new reading of 3.6% growth from the previous 4.4%.

Anyone looking for better tidings about U.S. consumers might take comfort in the consumer confidence data released earlier in the week, which came in way above expectations and seemed to indicate that some consumers, at least, might be willing to open their wallets a little more. In just over a week, September employment numbers will hit the street, and perhaps everyone could get a better sense of what’s driving the what sometimes seem to be confusing economic data.