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Our two favorite scenarios for the Fed’s big March meeting next week
Rana Adam6 days ago
Two things will capture the market’s full attention in the coming week: the Federal Reserve’s March meeting and the government’s continued attempt to assuage concerns about the banking system. The market is currently pricing a slightly higher probability of the Fed raising interest rates by 25 basis points on Wednesday, rather than leaving them unchanged (about 60/40 split at Friday’s close). However, with inflation cooling, there is an argument to be made for a “hawkish pause” to raise rates. This would give the FOMC some time to digest the collapse of SVB’s impact on the banking sector and gather more inflation data as February’s core PCE price index – the measure of inflation favorite of the Fed – is published on March 31. SVB officially filed for bankruptcy on Friday. . Following the collapse of the SVB, banks are raising their deposit rates to better compete with Treasury yields, which have proven to be a better alternative to keeping cash in savings and checking accounts. They have also started tightening loan terms. These two moves should do at least some of the Fed’s tightening work for her. As discussed Friday, the government must find a way to restore confidence in the US banking system and assure depositors that their money is safe without causing or at the very least minimizing the risk of moral hazard. Rate hike or not, we’ll be watching Fed Chairman Jerome Powell’s post-announcement press conference closely for clues on future policy. The Fed Chairman must balance the rate committee’s decision with the counterbalance of his commentary. In other words, we are looking for a “hawkish break” or – given the probabilities indicated by the CME FedWatch Tool for a rise – a “dovish rise”. A strong argument in favor of the latter (dovish increase) is that it would show the market that the Fed does not see the SVB event as something indicative of a larger problem. At the same time, it would also make it clear that the central bank is going to proceed with an increased level of caution. If he goes up, Powell should speak quietly; no raise and Powell should strongly remind the market that the job is not done. What we don’t want to see is an “accommodative pause” or a “hawkish increase”. The former will raise fears that Powell has taken his eyes off the ball, while the latter might raise fears that Powell is on course to send us into a hard landing recession. No portfolio company will report next week. Here are some other earnings reports and economic numbers to watch in the week ahead: Monday, March 20 Before the bell: DouYu (DOYU), Foot Locker (FL), Pinduoduo (PDD), Niu Tech (NIU) After the bell: ProFrac (ACDC) Tuesday, March 21 Before the bell: Canadian Solar (CSIQ), Tencent Music (TME), HUYA (HUYA) After the bell: GameStop (GME), Nike (NKE), Array Tech (ARRY), AAR Corp ( AIR) 10:00 a.m. ET: Existing Home Sales Wednesday, March 22 Before the Bell: Petco Health (WOOF), Winnebago (WGO), Shoe Carnival (SCVL), Ollie’s Bargain (OLLI), iMedia Brands (IMBI), Baozun (BZUN ) After the bell: Chewy (CHWY), KB Home (KBH), Worthington Industries (WOR), Steelcase (SCS), MillerKnoll (MLKN) 2:00 p.m. ET: FOMC meeting Thursday, March 23 Before the bell: Accenture (ACN), BRP (DOOO), Commercial Metals (CMC), Darden Restaurants (DRI), FacSet (FDS), General Mills (GIS), Movado Group (MOV) After the Bell: Vasta Platform Limited (VSTA), Quest Resource (QRHC) 8:00 a.m. 30 ET: R Initial cheers 10:00 a.m. ET: New Home Sa Friday, March 24 Before the Bell: Express (EXPR) 8:30 a.m. ET: Durable Goods Orders Review This week’s big macro event — SVB fallout aside — has was the February consumer price index release on Tuesday, which matched analysts’ expectations. More importantly, it showed a deceleration in the annual rate of inflation, both headline and excluding food and energy, known as the core index. Worries over the stability of the global banking system, spurred by struggles in the First Republic (FRC), led to a selloff on Friday. Still, for the week, US stocks fared better, with the S&P 500 up 1.5% and the Nasdaq up 4.5%. Only the Dow lost ground, down 0.1%. While some may normally view a move to technology as a “risk on” trade, there is the view that what we actually saw was a flight to security after the explosion of Silicon Valley Bank (SVB ) and heightened fears that a recession is on the horizon. In addition to falling Treasury yields — when bond prices rise (due to increased buying) yields fall — energy stocks fell. Both of these movements are signs of recession fears. Weaker economic activity will lead to lower demand for energy, it is thought. Instead, we’ve seen a move toward those high-quality names that are not only critical to global productivity, but also have the ability to cut fat to protect profit margins and sport some of the strongest balance sheets in the world. world. On Wednesday, February’s producer price index was weaker than expected, with a month-on-month decline against expectations for an increase. February retail sales, also released on Wednesday, were in line with expectations. On Thursday, initial jobless claims for the week ended March 11 came in at 192,000, down 20,000 from the previous week and below the 205,000 expected. Also on Thursday, we learned that February housing starts were up 9.8% from January, and down 18.4% from a year earlier. Building permits rose 13.8% per month (-17.9% per year), both above expectations. Finally, on Friday, industrial production was unchanged in February from January. Capacity utilization also held steady at 78%, consistent with the January reading. Under the hood, the Communication Services sector led higher, followed by Technology and Utilities, while Energy led lower, followed by Financials and Materials. Meanwhile, the US Dollar Index is hovering just below 104. Gold is trading in the upper $1,900 an ounce. WTI crude prices retreated to around $66 a barrel, while the 10-year Treasury yield returned to around 3.4%. No portfolio company reported earnings this week. (See here for a full list of Jim Cramer’s Charitable Trust stocks.) As a CNBC Investing Club subscriber with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, AS WELL AS OUR DISCLAIMER. 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U.S. Federal Reserve Board Chairman Jerome Powell speaks during a news conference following a meeting of the Federal Open Market Committee (FOMC) at Federal Reserve Headquarters July 27, 2022 in Washington, DC.
Drew Anger | Getty Images
Two things will capture the market’s full attention in the coming week: the Federal Reserve’s March meeting and the government’s continued attempt to assuage concerns about the banking system.
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Rana Adam6 days ago
