Market players were feeling a bit nervous and uncertain as they digested last night's earnings reports and had looked ahead to the Microsoft (MSFT) earnings that would arrive later in the day. After a mid-morning bounce the indexes rolled over again and made new intraday lows. It was looking like the market would drift around with a negative bias as it contemplated what would happen next.
What the market didn't contemplate was the Fed would ride to the rescue. John Williams, the President and CEO of the New York Federal Reserve, gave a speech and said, "When you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress."
As his very dovish comments hit the news wires, the chances of a half-point interest rate cut at the July Fed meeting jumped sharply to around 50%. Such a cut seemed unlikely just a short time ago, but now the market is giving it even odds.
Williams' comments were followed by more dovish comments by Fed Vice Chairman, Richard Clarida, and then news that the U.S. shot down an Iranian drone boosted safe haven bonds even more.
The dollar collapsed on the Fed comments and that sent precious metals sharply higher once again.
Market players were focusing on earnings news before this flurry of Fed news, and the bears were hoping that growth concerns might put some pressure on things. The pessimists keep underestimating the power of the Fed. The sharp response to the Williams headlines tells us that this market still has not fully discounted what the Fed might do at the meeting in less than two weeks.
But then, Microsoft numbers came out and the initial reaction is positive. Earnings per share of $1.71 is 50 cents better than analysts' estimate of $1.21. Revenue for the quarter came in at $33.7 billion vs. the consensus estimate of $32.77 billion.
The stock has already priced in a strong report, but that is a blow-out number and buyers are willing to chase it even higher. That bodes well for the overall market.
We'll see how well things hold up as we digest Fed headlines and good earnings. Those are major obstacles for the bears.
Have a good evening. I'll see you tomorrow.
Microsoft is a holding in Jim Cramer's Action Alerts PLUS member club.