Are warning signs good or bad?

Stocks closed out the month in the red as investors lost further conviction that the Fed would turn market benefactor. Consumers are getting skittish about the future… can you blame them?

Sprung? Can you hear it? I can, albeit faintly. Today is the first day of meteorological spring. I know that it’s only a technical, science-y thing, but spring in any form is good enough for me to pause and listen for early signs. I am looking out on my garden and all I see in the faint beginnings of daybreak is a whiteish, icy patina on my lawn. There is nowhere to sit and take in the sun, which is still too low on the horizon to affect any growth. All my outdoor furniture is still hibernating under a shrink-wrapped piece of plastic like something out of a grocery store freezer section. My barbecue… ahh, my barbecue. It too remains in a deep slumber. In just a few short weeks, the spring we all know will arrive in the northern hemisphere. Once it does, I will begin the campaign on my wife. At first, just hints of what may lie ahead… the culinary delights of spring and summer. By the second or third week of spring, I will turn up the pressure and forwardly suggest to her that we get the barbecue ready for the season by taking it for a test drive. All at once, the sun will start to peek through the high pines on the southeast corner of my yard, finally with an elevation angle sufficient to shake back to life the plants, the trees, the foxes, the rabbits, and… me.

It takes patience, but it will come, I am certain of it. I can wait because I know the bounty that awaits me. My reward for patience. After a trying year in the markets, we are all… er, a bit short of patience. The Fed is intentionally throttling the economy to get inflation back down to healthy levels. A year of pain invested will hopefully yield many years of pleasure. So, we took our medicine only to learn that inflation is not yet gone and that the Fed will have to continue its assault on economic growth. The green shoots that appeared in the stock markets through January proved a false signal in February, a month which was wrought with hot economic numbers and a lackluster earnings season. Fed policymakers, intent on getting the job done, spent the month reminding us that more pain is coming. All that was enough to cause consumers to lose a bit of confidence. In fact, the latest Consumer Confidence report from The Conference Board showed that confidence waned in February proving economists who were expecting an increase, wrong. That is not good for the economy as consumers make up some 2/3 of economic growth. For inflation, lower confidence will lead to lower demand, which, in theory at least, should have a disinflationary effect on prices. So, is it good that consumers are losing confidence, or is it bad? Markets are unsure of what to make of it, as yesterday’s price action in stocks illustrated. Interest rate expectations in Fed Funds futures are creeping up and bond yields too, are reflecting higher for longer rates.

The fact remains that inflation is still too high, and signs of its departure are unclear. Until we see a clear trend back towards the Fed’s target, we can’t expect the Fed to reverse course. Until then, patience is the only answer, sorry. I did actually hear a faint birdsong this morning as I penned this note. It was faint, but it was present, though it was quickly drowned out by the crow’s caws. I will start making my plans, nonetheless.

WHAT’S SHAKIN’

First Solar Inc (FSLR) shares are higher by +5.53% in the premarket after it announced that it beat EPS and Revenue estimates by +60.23% and +0.91% respectively. The company provided full-year guidance that far exceeded analysts’ estimates. In the past 30 days 25% of analysts have changed their price targets 6 up, 1 down, 18 unchanged, and 2 dropped. Potential average analyst target upside: +13.1%.

Monster Beverage Corp (MNST) shares are lower by -4.68% in the premarket after it announced that it missed EPS and Sales estimates by -8.70% and -5.36% respectively. The company attributes the EPS miss to rising costs, particularly in energy. The company’s forward PE of 33.66x is higher than the 24.32x of its peers. Potential average analyst target upside: +7.7%.

YESTERDAY’S MARKETS

Stocks had a rocky ride yesterday as early gains were erased into the close as investors shored up positions for the month end. The S&P500 fell by -0.30%, the Dow Jones Industrial Average dropped by -0.71%, the Nasdaq Composite Index slipped by -0.10%, and the Russell 2000 Index crept higher by +0.04%. Bonds gained and 10-year Treasury Note yields stayed level with Monday at 3.92%. Cryptos slipped by -0.09% and Bitcoin lost -1.02%.

NEXT UP

• S&P Global US Manufacturing PMI (Feb) is expected to come in at 47.8 in line with flash estimates.
• ISM Manufacturing (Feb) may have increased to 48.0 from 47.4.
• Minneapolis Fed President Neel Kashkari will speak today.
• After the closing bell earnings: Salesforce, Splunk, Okta, Snowflake, Plug Power, and Pure Storage.