I forgot to mention on Monday that the two-day Federal Reserve Open Market Committee (FOMC) meeting, the first under Janet Yellen, would convene for two days and issue its monetary policy yesterday. Well that did happen. The markets initially took it in stride and then sold off during Yellen’s press conference. By the close nearly half of the day’s losses were recouped and stock market indexes were down fractionally. For the most part, the FOMC told us what we already knew, which is that its asset buying program would be further tapered and that short term interest rates would increase slightly beginning in 2015. Other than that, we got some fed speak and information that economists and Fed followers cherish. In the final analysis, we had a typical FOMC monetary decision day roller coaster.
Winter Weather About to End
One thing that was quite apparent was that the FOMC recognized the impact of the adverse winter weather. Today marks the first day of spring. Just as with Mighty Casey, hope springs eternal for the US economy that the winter doldrums will end. Unlike Mighty Casey, I do not expect the economy to strike out in the second quarter. I do expect that first quarter earnings will continue to disappoint due to the weather, leading to a reduction in guidance for the second quarter. Take FedEx (FDX) for example which did just that earlier this week. This will lead to better than expected earnings when second quarter results are reported in July. For the record, I have my eye on both FedEx and UPS (UPS), at the right price, which should materialize on the next market pullback.
Sporting Goods Continue to Impress Investors
As for today, Nike (NKE) and Conagra (CAG) will report quarterly results and the weekly unemployment claims figures will be released. Given what the sporting goods retailers such as Dicks Sporting Goods (DKS) have reported, I expect Nike will meet or beat expectations. Conagra will give us a glimpse into the impact on food and commodity prices from the winter weather.
Let’s just take yesterday’s FOMC reaction in stride. The credit markets are still very strong and participants will buy any paper thrown at them which will keep long term interest rates in check despite what the FOMC has planned on the short end. This will continue to feed the voracious appetite of corporations to use cash to buy back stock, invest in technology and minimize adding to payrolls.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long DKS — although positions can change at any time.
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