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The Day Ahead: Some Quick Hits

Fed vs. Fed

This is how I have analyzed the most relevant paragraphs of the Federal Reserve's Wednesday release. You might want to save it for your notes. The language tweaks are in bold below.

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March: "Information received since the Federal Open Market Committee met in January suggests a return to moderate economic growth following a pause late last year. Labor market conditions have shown signs of improvement in recent months but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy has become somewhat more restrictive. Inflation has been running somewhat below the Committee's longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable."

April: "Information received since the Federal Open Market Committee met in March suggests that economic activity has been expanding at a moderate pace. Labor market conditions have shown some improvement in recent months, on balance, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth. Inflation has been running somewhat below the Committee's longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable."

Assessment: In other words, the Fed is now signaling that only some sectors of employment are now carrying the weight. It also acknowledged that monetary policy cannot offset sequester impacts.

* * *

March: "The Committee will closely monitor incoming information on economic and financial developments in coming months. The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives."

April: "The Committee will closely monitor incoming information on economic and financial developments in coming months. The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives."

Assessment: Wow -- a whole line was added. After all, the market sold off even as the Fed opened the door to a ramp in monthly bond buys. That's a red flag, and perhaps a sign that the focus will return to a weak first-quarter earnings season.

* * *

The Wrap

The only conclusion is that, in spite of a parade of negative macroeconomic surprises within the April data, the market's expectations have not adjusted accordingly. That inaction leaves me concerned, still, ahead of Friday's employment report, which has had its bar lowered a touch.

At the time of publication, Sozzi had no positions in the stocks mentioned.
At the time of publication, Sozzi had no positions in the stocks mentioned.

Brian Sozzi is the CEO and Chief Equities Strategist of Belus Capital Advisors. He is responsible for developing and managing an equities portfolio of mid- and large-cap positions, in addition to leading the firm's digital content initiatives. He is also a personal finance columnist for Men's Health magazine.

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