The most anticipated tech IPO since Alibaba’s 2014 debut is over and done with.
And it went well.
On Thursday, Snapchat parent company Snap Inc. (SNAP) made its debut on the New York Stock Exchange, rising 44% to close at $24.48 per share. On Wednesday night the company priced its initial offer price at $17 per share.
This pop in Snap shares came amid a day when stocks were down across the board, a contrast from Wednesday’s massive rally that sent the Dow above 21,000 for the first time.
Looking out to Thursday, the economic calendar will be quiet with readings on the services sector due for release from Markit Economics and the Institute for Supply Management.
The main highlight, however, will be a speech from Federal Reserve Chair Janet Yellen, who is expected to speak at the Executives Club of Chicago at 1:00 p.m. ET. This speech will come as rates markets have increasingly priced in hike from the Fed at its March 14-15 meeting. According to data from the CME Group, markets have a put a 75% chance on the Fed taking its benchmark interest rate to 0.75%-1% from 0.50%-0.75%.
This would be the third rate hike since the financial crisis.
The major re-pricing in Fed Funds futures came after Fed governor Lael Brainard spoke on Wednesday, giving what Deutsche Bank economist Joe LaVorgna called “tacit approval” of a March move.
In that speech, Brainard said, “recent developments suggest that the macro economy may be at a transition. With full employment within reach, signs of progress on our inflation mandate, and a favorable shift in the balance of risks at home and abroad, it will likely be appropriate for the Committee to continue gradually removing monetary accommodation.”
Brainard is considered one of, if not the most dovish member of the Federal Open Market Committee, which votes on monetary policy.
In a note to clients on Thursday, LaVorgna wrote that, “With equity prices near historic highs and the recent economic data largely positive, barring a massive downside disappointment in the February employment report, we now expect the Fed to seize this window of opportunity to get another hike on the board in March. Fed Chair Yellen will likely intimate as much in her speech [Friday] afternoon.”
After Friday’s speech from Yellen, the Fed will enter its pre-announcement blackout period, and so the next key date will be the February jobs report on March 10. Barring a major disappointment then, March 15 will be the next time the Fed raises interest rates.
Hiking to the finish
In recent weeks, we’ve written that while markets don’t much seem to care what does or does not come out of the Trump administration, stocks will not go up indefinitely. There will be a decline.
When and how much stocks fall is the question, of course, everyone would like to know the answer to ahead of time and no one will know until after the fact.
But a strategist who has been repeatedly reminding investors of the dangers that currently exist in markets is David Rosenberg at Gluskin Sheff.
In his latest missive to clients published Thursday morning, Rosenberg noted a theme he’s referenced a few times in recent months, which is that regardless of what else is happening in markets and the economy, once the Fed begins raising interest rates the days of a bull market are numbered.
“Monetary policy is profoundly more important to the markets and the economy than is the case with fiscal policy, though all the Fed is doing now is removing accommodation,” Rosenberg writes.
“A little bit of history — there have been 13 Fed rate hike cycles in the post-WWII era, and 10 landed the economy in recession. Soft landing are rare and when they have occurred, they have come in the third year of the expansion, not the eighth.”
When the Fed began raising interest rates in December 2015, the occasion was almost met with relief by some. Many had argued the U.S. economy would never get back to the point at which the Fed would want to remove accommodation, and many had (and still do) argued that excessively easy monetary policy was inflating bubbles throughout the economy.
And while the Fed’s raising interest rates does still, on some level, affirm the strength of an economy that has been repeatedly talked down, this is the time for markets to realize what is and is not happening in the economy.
The unemployment rate is low, wages are rising modestly, and easy financial conditions are likely to get tighter, not looser, from here. Again, history says this is when the bull market really enters its final days.
And while the stock market is not the economy and vice-versa, don’t forget that last week the Treasury Secretary said the stock market can be viewed as something like a report card for the economy.
This is all fine and well when stocks are going up. We’ll see what happens when stocks go down.
As Rosenberg wrote Thursday: “[Markets] do not correct by going sideways!”
—
Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
Read more from Myles here: