Enough with the Fed. Bring on the earnings.
I wish it were that simple. You see, it can't be, because the reason that we care so much about the Fed is that 2019's earnings estimates are too high, if Jay Powell sticks to his three rate hikes scenario -- the one now that he can't walk back if he tried, without weakening the Fed's independence.
That's right, if the economy has become weaker at the same time the Fed lays out a plan that doesn't rely on the data for its decision tree, then you are going to have some punk earnings engineered by the Fed itself.
At the suggestion of my writing colleague Matt Horween, I want to make my stance perfectly clear: I was not and am still not against another rate hike this year, because I want to be sure the weaker data I am seeing right now isn't an aberration.
But I think that if you didn't question the Fed's judgment, given the forward-looking nature of what we are seeing in almost every single sector and, on top of that a weaker than expected CPI, then when are you going to do so? Do they have to say "we're wrong" in order for you to say "they're wrong?" It's okay to trust the Fed, but to also verify. And its course, as far as am concerned, has proven to be unverified.
So, here's what's about to happen. There is hardly a company on earth that can raise its forecast, given what the Fed is doing as it boosts the dollar, slows growth and makes people feel less wealthy. That's just a fatal cocktail.
The battle is shifting. From now on, you are going to hope that a company can keep its forecast and hope the stock doesn't fall from here when it guides consistent with the previous forecast.
And if you cut numbers because of the Fed? No one is going to say "ex-Fed" like they say "ex-gasoline" or "ex-currency." You are not going to see Jay Powell-adjusted earnings.
Now, the apologists, who are so legion, either say that the economy is so strong he is doing the right thing or that inflation is so high he is doing the right thing. The first view has become demonstrably false. The second view will take some time.
Companies need to take their production out of China as fast as possible, if they can. We have to find a way to hold oil down through additional supply that is not yet on the market. There have to be adjustments in the supply chain that makes it work as well as it used to before a big spike in business.
But that will all happen by the second quarter, I figure. Unfortunately, that's when Powell will be about to slap on his third rate hike from now and that will be the clincher that makes it so we are in a guide-down mess.
So bring on the earnings. Remember, though, ex-Jay Powell is not going to cut it when you slash your numbers anyway.
