Stocks, in the bumpiest of rides, closed higher yesterday in the wake of a carefully crafted message from the Fed Chairman. The bumpy ride will continue until inflation gets back to normal, according to Powell.
Here goes nothing. I promised you some interesting price action surrounding Powell’s Economic Club of Washington chat, and boy, did he deliver. Stocks were marginally higher when Powell took to the airways. No sooner did he repeat his “disinflation has begun” comments did the markets slingshot higher, climbing some +1.2%. Then came the cold water. More rate hikes (plural) may be necessary to get inflation back to 2%, according to his comments. That was somewhat upsetting to bulls who were leaning into the rally. Powell doubled down, specifically referencing last Friday’s strong labor market number. That was all traders needed to hear to fade the rally… hard, pushing the S&P down by -1.8% in the span of some 38 minutes. By 2:00 PM Wall Street Time, many frustrated bulls simply turned off their screens and started scanning the TV for a diversion to ease the pain of the failed rally. But those bulls who stuck with it were paid handsomely as the market began to rally minutes after hitting intraday lows tacking on +1.85% to close well within the green, up +1.29% on the day.
So, what caused the crazy price action? Markets are bit on edge these days. “Ya’ think,” you query? Yep, the economy may be teetering on a late-in-the year recession, earnings season is rife with “headwinds”, interest rates are high, China is losing balloons over the Americas, the war in Ukraine rages on, India is happy to buy Russian oil on the cheap, 1 in 4 UK citizen will not be able to afford their energy bills… need I go on? But something is odd. Rolls Royce just came out with a $500k electric vehicle! Oh, and the unemployment rate is the lowest since April… April of 1969! The Nasdaq Composite which lost -33% last year was up by +13.58% from the start of the year through Monday’s close. Seems like ripe conditions for volatility to me. On that note, the VIX Volatility Index has been firmly below 20 for most of 2023. While that means lower volatility than the past few years, it implies something beyond. The index is prone to break out on the upside after remaining low. Indeed, there is quite a bit of tension around the market these days.
The reality is that inflation is actually showing signs of subsiding. We know that it is still far too high and that we still have a “ways” to go… we are often reminded of that by Fed speakers… and our grocery bills. But, nonetheless, there are some positive signs. Powell did reference COVID-era supply chain problems as being the culprit for this infectious inflation regime. On that note, I happened across an interesting note from Maersk, the shipping giant, that it expects shipping volumes to sink further this year. Remember how shipping costs were complaint #1 in earnings from late 2020 and throughout 2021? Well, check out the following chart, which shows the Shanghai Shipping Exchange Containerized Freight Index which tracks, as its name implies, the cost of shipping containers. The bottom line is that inflation is still here, but headway is being made. Rates will probably need to go higher, but not much, and they will have to stay higher for longer. Powell said as much yesterday. He also said the same thing last week, and the markets already adjusted in the wake of Friday’s employment number. So, Powell served the market a big nothing burger yesterday… it just took traders a few minutes to realize it. The Head Fed did also remind us that the Bank’s actions will be data dependent going forward, so we best focus on that data going forward!
WHAT’S SHAKIN’
Lumen Technologies Inc (LUMN) shares are lower by -16.3% in the premarket after the company announced that it beat EPS and Revenue targets by +115.72% and +0.95% respectively. The reason for the drop is that the company’s full year EBITDA forward guidance came in significantly lower than analysts were expecting. Potential average analyst target upside: +4.2%.
Enphase Energy Inc (ENPH) shares are higher by +8.99% in the premarket after the company announced that it beat EPS and Sales targets by +22.13% and +2.42% respectively. Potential average analyst target upside: +28.4%.
Fortinet Inc (FTNT) shares are higher by +10.38% in the premarket after announcing a +12.73% earnings beat. The company offered current and full year guidance that was above analysts’ estimates, adding further proof that demand remains strong for network security solutions. In the past month 56% of analysts adjusted their price targets: 15 up, 2 down, 10 unchanged, and 3 dropped. Potential average analyst target upside: +31.2%.
ALSO, this morning: Coty (COTY), Eaton Corp (ETN), CVS Health Corp (CVS), Uber Technologies (UBER), Under Armour (UAA), Yum! Brands (YUM), and Dominion Energy (D) all beat on EPS and Sales, while Emerson Electric (EMR) missed the mark.
YESTERDAY’S MARKETS
A wild roller coaster for stocks ended up in the green as Jerome Powell repeated last week’s story, already factored into the market by Monday’s close. The S&P500 Index climbed by +1.29%, the Dow Jones Industrial Average advanced by +0.78%, the Nasdaq Composite Index traded higher by +1.90%, and the Russell 2000 Index added +0.76%. Bonds slipped and 10-year Treasury Note yields gained +3 basis points to 3.67%. Cryptos gained +1.30% and Bitcoin traded higher by +1.24%.
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