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The Dow Jones Industrial Average staved off the dog days of summer with a modest gain. In today's Intraday Update, we... 
•...parse Federal Reserve Chairman Jerome Powell's testimony before the Senate Banking Committee on the central bank's monetary policy;
•...wonder what's driving the credit boom;
•...explain why Charles Schwab (SCHW) is up nearly 4% and why Omnicom Group (OMC) is down more than 7% (hint: earnings).

Yadda, Yadda, Yadda

Stocks have gotten a small boost on an otherwise nowhere-going day on Chairman Powell's testimony. The Dow has gained more than 70 points, or 0.3%, to 25,136.35, the S&P 500 has risen 0.5% to 2812.21, and the Nasdaq Composite has ticked up 0.7% to 7859.10.

"Fed Chair Powell was as uneventful as can be. He seems very intent to remain on the path laid out with the continued "gradual" pace of interest rate hikes and roll off their balance sheets," noted Peter Boockvar, chief investment officer of Bleakley Advisory Group.

Usually, the markets hang on every word and look to the commentary for direction, but today was not that day–most likely, because investors have heard it all before or, as Chuck Butler, editor of A Pfennig For Your Thoughts, puts it: "The economy is robust, unemployment is down, yadda, yadda, yadda..."

While Chairman Powell's "businesslike" tone was a departure from previous leadership, Michael Shaoul of Marketfield Asset Management noted that Powell's speech added little to policy. However, Shaoul found it noteworthy that Powell chose to end his speech with talk about the rules.

Powell said: "For guideposts on appropriate policy, the FOMC routinely looks at monetary policy rules that recommend a level for the federal-funds rate based on the current rates of inflation and unemployment. The July Monetary Policy Report gives an update on monetary policy rules and their role in our policy discussions. I continue to find these rules helpful, although using them requires careful judgment."

To Shaoul, Powell's remarks suggest that those rules will play a greater role in discussions and decisions by the FOMC going forward. "Unfortunately, the various 'rules' that exist have a wide variety of policy indications, so this shift in itself does not add much guidance to future policy itself, more to the manner in which it is likely to be guided," Shaoul wrote. So perhaps there was a bit of a meaningful yadda hidden in Tuesday's speech.

What, perhaps, deserves more attention is the pace at which the credit market is growing. Similar to the 2003-to-2007 period, this stock market bull is being led by credit–only instead of banks being a major contributor, they are now a drag.

As banks came out of the crisis, they trimmed their holdings as investors charged banks an above-average yield whereas before the crisis investors lent to banks at a below-average yield, recalls Brian Reynolds, a Canaccord Genuity analyst, in a note published Tuesday morning. That combined with Dodd-Frank meant banks lightened up. Reynolds estimates that banks now account for less than 7% of the credit market. When the last financial crisis hit in 2007, banks owned some 26% of the U.S. public credit market.

Despite banks' lack of participation, credit is booming. That suggests U.S. public pensions, insurance companies, and lightly regulated cash funds are being more aggressive in this market cycle than the last, which could spell trouble for stocks. "That aggressiveness is responsible for the strength of the equity bull market, and means that the next financial disaster (which is most likely going to kick off in 3-5 years) has the potential to be significant," writes Reynolds.

Stocks may be going nowhere, but per Reynolds, let's not forget that we are also, now here.


Charles Schwab (SCHW) is up 3.9% to $52.84 after reporting second-quarter earnings. The online broker earned 60 cents a share on revenue of $2.49 billion. Analysts were looking for EPS of 58 cents on revenue of $2.46 billion.

Intel (INTC) is down 1% to $51.50 after Evercore ISI downgraded it to In-Line.

Lions Gate Entertainment (LGF.A) is down 0.5% to $25.22 after announcing John Malone will step down from the board of directors.

Omnicom Group (OMC) is down 7.5% to $72.24 after reporting second-quarter earnings. The ad agency earned $1.60 a share on revenue of $3.86 billion. Analysts were looking for EPS of $1.54 on $3.88 billion in revenue.

Progressive (PGR) is up 2.4% to $59.80 after reporting second-quarter earnings. The insurer earned $1.19 a share on revenue of $8.1 billion. Analysts were looking for EPS of $1.11 on revenue of $8.01 billion. –Teresa Rivas
 Intraday Update: The Dow, Up 65 Points, Is Going Nowhere Fast


