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“It’s probably too early to call it a streak” – Kevin Warsh

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

Fed Chair Kevin Warsh opened yesterday’s press conference with the line above. He wasn’t talking about equities, but he could have been; stocks fell more than 1% for the second straight meeting day under his leadership. The Chair is being nearly universally criticized for his muddy communication style and ending the Fed’s policy of forward guidance, which he believes the market has become too reliant on.  The Warsh Fed certainly isn’t off to a great start from an equity market perspective, but it’s still early. It won’t operate like the post-financial-crisis Feds that preceded it, and what looks like a rough start may be nothing more than the market adjusting to that.

What we can tell you is that the bond market isn’t happy. Long-term Treasury yields sold off sharply in response to yesterday’s Fed decision and subsequent press conference. The iShares 20+ Year Treasury Bond ETF (TLT) fell over 1% to 52-week lows. In fact, outside of one day in October 2023, TLT hasn’t traded at these levels since June 2007!

Looking at a long-term chart of TLT shows how deep the declines have been over the last several years. Since its inception in late 2002, there have only been 47 other trading days (out of more than 5,000) that the ETF closed lower than yesterday. That’s less than 1% of all trading days.

Moving from the bond market to equities, there’s some good news this morning from Microsoft (MSFT). After reporting better-than-expected results and raising guidance, the stock is up over 9%, which would be on pace for one of its largest upside gaps in response to earnings since at least 2001.

The table below lists the 10 prior largest upside opening gaps in MSFT from our Earnings Database, and one trend that stands out is how the stock has typically reacted after the opening bell. In nine of the ten prior occurrences, shares of MSFT traded lower. Never by enough to erase the opening gains, but there clearly wasn’t a lot of follow-through. This will be interesting to watch today. Already, its been hard enough for stocks to hold onto gains from good news this earnings season, so if MSFT can buck that trend, it would be a positive signal.

Based on its recent performance, MSFT could use the rally today. The stock has been in a steady downtrend for the last year, and while today’s rally won’t be enough to break the trend of lower highs, it will take the stock back above its 50-DMA. It’s a start, at least.

In the markets this morning, futures are trading higher, and MSFT’s rally is a big driver of those gains as the S&P 500 is indicated to open up 0.7% while the Nasdaq looks to gain more than double that with a rally of 1.5%. The rally in equities comes even as Treasury yields continue to rip higher, with the 10-year yield at 4.67%. Crude oil, however, is cooperating with a decline of 1.3% and trading just above $83 per barrel. Gold and Bitcoin are also both higher.

It was a mixed session in Asia overnight with Japan up fractionally and the Kospi down 1.2%, even after rallying intraday on the back of Samsung results. The rally in Japan came despite the government lowering growth forecasts while raising CPI estimates. Not exactly the combination you want to see.

In Europe, stocks are higher across the board. The STOXX 600 is up 0.4% as Spain rallies more than 1% and Germany gains just 0.2%. Flash GDP for the region came in higher than expected, rising 0.4%, which was double the 0.2% forecast.

It’s been a busy morning for US data as well. Personal Income and Spending missed expectations, jobless claims were lower than forecast, PCE was in line at the headline level and slightly weaker on a core basis, while GDP missed estimates.

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