Powell Giveth and Yellen Taketh Away

Markets opened flat on Wednesday as traders waited on the Fed decision.  The three major indices then wandered around the opening level before a midday selloff.  The bulls then stepped in at about 1:15 pm and rallied markets into the Fed announcement.  At that point, all three showed major volatility, first spiking up, selling off hard, and reversing again and again.  All three reached the highs of the day at 2:50 pm before then putting in the strongest downtrend of the day.  This move saw a 3:15 pm bounce but resumed and took all three major indices out on their lows.  This action gave us large, black-bodied candles with large upper wicks in the SPY, DIA, and QQQ.  The DIA also printed an Evening Star signal and crossed back below its T-line and 200sma.  SPY crossed down its 200sma while remaining above its T-line.  And, continuing to be the strongest of the major indices, QQQ remains well above its T-line.

On the day, all 10 sectors were in the red with Financial Services (-2.39%) leading the way lower while Consumer Defensive (-0.80%) held up better than the other sectors.  At the same time, the SPY lost 1.70%, the DIA lost 1.67%, and QQQ lost 1.36%.  VXX climbed 4% to 50.43 and T2122 dropped back into the oversold territory at 8.06.  10-year bond yields plummeted again to 3.451% while Oil (WTI) gained half of a percent to $70.02 per barrel.  So, Wednesday saw huge volatility following the Fed statement, Dot Plots, and press conference the bulls seemed to like but Treasury Sec. Yellen said the FDIC will not cover all deposits, which gave the bears firm control at the end of the day (on fears of more regional bank runs).  This all happened on average volume. 

In economic news, the EIA Weekly Crude Oil Inventories came in much higher than expected at +1.117 million barrels (compared to a forecast that called for a drawdown of 1.565 million barrels and the prior week’s build of 1.550 million barrels).  Later, the Fed Future Interest Rate Projections (aka Dot Plots) showed a forecast of 5.1% (the terminal rate) for 2023 (up from the prior forecast of 4.4%), 4.3% interest rate in 2024 (down from the prior forecast of 5.1%), and 3.1% in 2025 (down from the prior forecast of 4.1%).  The FOMC also raised the Fed Funds Rate by 25 basis points to the 4.75%-5.00% range.  The Fed statement continued to predict one more rate hike and no rate cuts in 2023.  However, they also stated that the future hike is not a sure thing and will depend on data. During his press conference, Fed Chair Powell said “the US banking system is sound and resilient.”  He also said disinflation is happening, that the Fed had considered a rate hike pause due to the banking issue, and that this current situation with regional banks is likely to tighten credit conditions for households and businesses (which will help the Fed to curb inflation by weighing on the economy).  At the same time, Treasury Sec. Yellen told the Senate Banking Committee that banks have been shoring up their liquidity the last two weeks and that the government was taking steps to protect depositors.  However, she said the FDIC was not considering providing “blanket insurance” (insuring all deposits regardless of size) at this time.  She said it was worthwhile to look at changes, but increasing above the current $250,000 limit is not being considered. Still, she said when a bank fails and is believed to pose a systemic risk (i.e., pose a risk of contagion of bank runs) “we are likely to invoke a risk exception” that allows the FDIC to cover all deposits.  So, basically, Yellen said they won’t insure all deposits but if a bank gets run and they think it will prevent panic, they will cover all deposits for that specific bank.  (Here’s to hope that your bank is likely to cause a panic if it goes under.)

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In stock news, the CFO of BA said Wednesday that the company will be taking more charges due to supplier quality issues on the KC-46 Tanker jet program, but added that the charges would not impact BA annual cash flow.  Elsewhere, the surprise GME profit on Tuesday night triggered a massive short-squeeze resulting in a 35% gain after a very volatile day that saw the stock up 53% at one point.  Meanwhile, BIDU’s smart car business unit received approval to be the first company to test autonomous vehicles on the road in Shanghai (population 26 million).  At the same time, Reuters reported that the MSFT search engine Bing has received a 15.8% boost in usage (compared to a 1% decline in the use of the GOOGL search engine) since the February 7 release of Bing’s AI-powered (ChatGPT) engine.  However, please be aware that Bing’s share of searches was so small to start with that this seemingly big move is really tiny overall.  In other news, ALB announced it will be opening a $1.3 billion lithium processing plant in South Carolina.  After the close, COIN said it has been issued a Wells Notice (notice the SEC intends to bring enforcement action). Finally, F announced on Thursday it will be re-releasing 2021 and 2022 results to reflect a finer level of detail by business unit. This is the first major car company to do so and will give much more insight into the company (and industry). Industry analysts expect to see massive losses from the electric vehicle unit but time will tell.

In stock legal and regulatory news, the CEO of MRNA defended the new, dramatically higher $130/dose price (versus $18/dose) for the COVID-19 vaccine before the US Senate Wednesday.  He was pushed by Senator Sanders but responded by pointing out it will be in single-dose syringes rather than in the 10-dose vials sold to the US government in 2021-2022.  In other drug news, the NIH announced it will not be using its “march-in” rights to grant production licenses to other manufacturers for the PFE prostate cancer drug Xtandi.  The agency said their analysis shows the drug is widely available (despite it selling for $170,000/year/patient).  At the same time, the US FDA has declined to approve ABBV’s Parkinson’s disease therapy.  This was a significant hit to ABBV, as the treatment was meant to be one of the company’s biggest drug introductions in the next one to two years.  Elsewhere, Reuters reported that GOOGL will gain unconditional EU antitrust approval for the acquisition of math app Photomath. The European Commission will rule on the deal on March 28, but sources tell Reuters the deal is approved.  Meanwhile, on this side of the pond, JNJ has appealed to the US Supreme Court to revive its effort to use bankruptcy law to avoid liability in more than 38,000 cases alleging JNJ’s Baby Powder (contaminated with asbestos) caused damages.  In other news, House GOP members are lining up behind business interests as they summoned NRLB officials while alleging the NRLB had been unfair to SBUX in ruling that the company broke labor law hundreds of times in its effort to fight unions.  In transportation, the FAA agreed to a request from DAL to reduce the “minimum flights requirement” and New York and Washington DC airports. The change will allow DAL and UAL to operate fewer flights (during congestion, staff outages, or whatever) without losing their landing slots at those airports.

After the close, CHWY, KBH, WOR, and SCS all reported beats on both the revenue and earnings lines.  Meanwhile, MLKN missed on revenue while beating (significantly) on earnings.  It is worth noting that MLKN lowered forward guidance and SCS raised guidance at the time of the report.  It is also worth noting that in addition to MLKN, CHWY, and WOR earnings were significant upside surprises versus the average analyst forecast.

Overnight, Asian markets were mixed but leaned toward the green side.  Australia (-0.67%), India (-0.44%), and Japan (-0.17%) led the losses.  Meanwhile, Hong Kong (+2.34%), Shenzhen (+0.94%), and Taiwan (+0.66%) paced the gainers.  In Europe, markets are red across the board at midday.  The CAC (-0.55%), FTSE (-0.97%), and DAX (-0.63%) are typical and are leading the region lower in early afternoon trade.  As of 7:30 am, US Futures are pointing toward a green start to the day.  The DIA implies a +0.20% open, the SPY is implying a +0.47% open, and the QQQ implies a +0.90% open at this hour.  At the same time, 10-year bond yields are back up to 3.50% and Oil (WTI) is down three-quarters of a percent to $70.43/barrel in early trading.

The major economic news events scheduled for Thursday include Building Permits (8 am), Q4 Current Account and Weekly Initial Jobless Claims (8:30 am), and February New Home Sales (10 am).  The major earnings reports scheduled for the day include ACN, DOOO, CMC, DRI, FDS, and GIS before the opening bell.  Then after the close, JOAN reports. 

In economic news later this week, on Friday, Feb. Durable Goods, Mfg. PMI, S&P Global Composite PMI, and Services PMI are reported.  In earnings later this week, on Friday, EXPR reports.

So far this morning, ACN, GIS, DRI, and DOOO all reported beats on the revenue and earnings lines.  Meanwhile, FDS missed on revenue while beating on earnings.  On the other side, CMC beat on revenue while missing on earnings.  It is worth noting that GIS has raised its forward guidance.

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In late-breaking news, Bloomberg reports that the big Wall Street banks have eased off of their previously announced hiring freezes as they attempt to snap up the best talent available from CS.  Elsewhere, F began releasing its prior results broken out by business unit.  It seems the EV unit lost $2.1 billion in 2022, which was offset by $10 billion in operating profits from the internal combustion and fleet sales units.  Finally, the CEO of C (Jane Fraser) said that the SIVB collapse demonstrates we are in a new world where bank customers can move millions of dollars with just a couple clicks from any location.  She implied there need to be new or changed regulations to protect banks from “digital runs” because remote access to money electronically has removed banks’ ability to forecast the need for liquid assets.

With that background, it looks like the bulls are looking to make a move against yesterday’s late-day selloff. This is especially true in the QQQ. SPY has recrossed its T-line (8ema) and 200sma to the upside in premarket. Overextension from the T-line is not an issue in any of the big indices. However, T2122 is back in the oversold zone. While there is some economic news (including Weekly Jobless Claims) today, I suspect that talk and fears related to regional banks may be a big driver of direction. Until the regional banks stocks calm down, it will be hard for the big banks to hold up. And without the big banks, it’s hard for the DIA and SPY to hold ground either. So, be cautious and don’t let FOMO put you in a position where this daily chop eats you alive.

As always, be deliberate and disciplined…but don’t be stubborn. If you have a loss, admit you were wrong and take that loss before it gets out of hand. And when the price does move in your direction, always move your stops in your favor and take a little profit off the table. You have to keep the “Legend of the man in the green bathrobe” in mind. In a winning situation, it is NOT HOUSE MONEY you’re betting, it’s YOUR MONEY! There is absolutely no reason to keep raising your bet (risk) size just because you’ve had a win. Finally, remember that trading is not a hobby. It’s a job. The money is real and so is the risk. So, treat it that way. Do the work and follow the process. Stick to your trading rules, trade with the trend, and take those profits when you have them. Do the work!

See you in the trading room.


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