This morning, the data on the U.S. economy were rather light and that has investors focusing more on yesterday’s Federal Reserve monetary policy decision and another round of earnings news (more on each topic below). At 8:30 AM EDT, the Labor Department reported that initial jobless claims totaled 208,000 for the week ending April 27^th. That figure matched the previous week’s tally and is still indicative of a tight labor market. The big news from the labor market will come tomorrow morning when the April employment report is released, which has the potential to move the stock market. In separate reports today, we also learned that the U.S. trade gap narrowed slightly in March and nonfarm productivity rose 0.3% in the first quarter, which was a notable drop from the previous period and included a sharp increase in unit labor costs. None of today’s reports had a major impact on the equity futures, which are still presaging a higher start stateside after bumpy performance for stocks yesterday.

Indeed, the major U.S. equity averages delivered an uneven performance yesterday following a late-afternoon selloff on Tuesday. There were some signs of a “flight to safety” strategy among skittish investors, as the utilities issues were in demand. Driving trading yesterday afternoon was the Federal Reserve’s monetary policy decision at 2:00 P.M. (EDT) and then the reaction to Federal Reserve Chairman Jerome Powell’s commentary. As expected, he Federal Open Market Committee (FOMC) kept the federal funds rate steady at 5.25%-5.50%, but the market seesawed on the post-decision remarks from the Fed leader. The market initially rallied on what was deemed to be slightly less hawkish than expected commentary from Chairman Powell. However, after further analysis the market gave back those gains and then some in the cases of the NASDAQ Composite and the S&P 500 Index, possibly thinking that the central bank may find some resistance in its task of getting inflation back to the target growth rate of 2%.

The main takeaway from Chairman Powell’s press conference was that the Fed thinks inflation remains too high and that the recent price data would not make it an appropriate time to begin reducing the federal funds rate. However, Wall Street initially liked hearing that the Fed was not contemplating a rate hike. This put downward pressure on Treasury yields and the major averages rallied. Mr. Powell noted that the economy has made significant process toward its dual mandate objectives of promoting price stability and fostering full employment. In summation, he said improvement has been made on the inflation front, but the central bank would not be against keeping interest rates high for longer to bring the rate of price growth closer to the Fed’s target. The Chairman noted several times that monetary policy remains sufficiently restrictive and that was taken by investors to mean the central bank doesn’t see a rate hike in the near future.

However, the rub for investors remains the lack of progress made on the inflation front during the first quarter.  Wall Street also may not share Chairman Powell’s belief that economy is not heading into a period of stagflation. The perceived lack of faith may be driven by the recent rounds of economic releases showing a reacceleration in the pace of price growth at both the consumer and producer levels. That, combined with a sharp decline in consumer confidence in April and a contraction in manufacturing activity last month, is not likely to quell concerns about the possibility of some stagflation in the second half of this year. Working in Chairman Powell’s favor is the continued strength of the U.S. labor market. Mr. Powell believes that the Fed can bring inflation back to a rate of 2% without causing significant dislocations in the labor market. Unfortunately, with prices for many commodities again on the rise, the Fed may not be able to move the needle on inflation without considerably slowing the pace of economic growth. That thought has recently worried investors.

Since the close of trading yesterday, we received another round of earnings news from Corporate America, and the reports are bringing a mixed reaction from Wall Street. The headline story came from semiconductor giant Qualcomm (QCOM), which beat expectations in the latest quarter, and the tech company’s stock is trading higher in pre-market action. Insurance giants MetLife (MET) and American International Group (AIG) also both beat expectations in the latest quarter. Conversely, shares of DoorDash (DASH), eBay (EBAY), and Etsy (ETSY) are looking at lower openings today after the companies released quarterly results yesterday afternoon. Of importance, the e-commerce companies did note that they are seeing some sluggishness among users of their platforms and that may be giving credence to Wall Street not being lockstep with Chairman Powell in his assessment that the U.S. economy is not showing some signs of fatigue.

In general, those companies that have exceeded profit expectations or raised their near-term prognostications have been rewarded by Wall Street, while those that have disappointed with their performances have felt the wrath of investors. Amazon.com (AMZN) shares rose on the technology and retail titan’s strong results yesterday, while the stocks of Starbucks (SBUX) and CVS Corp. (CVS) fell sharply on weak quarterly results and lower guidance. This afternoon, the latest earnings report from technology behemoth Apple (AAPL) is expected to be highly scrutinized and that, along with tomorrow’s release of April employment data, is likely to drive trading during the week’s final session.  – William G. Ferguson

At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.