Robots are back in the operating room

Stocks broke even more or less yesterday as earnings were heavily scrutinized. Despite topline beats, they were just not enough to get investors excited.

Back to page 1. Are you a regular reader? No? Perhaps an occasional reader trying to become more regular. Maybe you try to avoid reading anything about the markets, but you accidentally opened my daily note once or twice. If you fit into any of these three categories, you are probably aware of the old Wall Street adage Don’t fight the Fed. There you go, you have heard the phrase.

There is a reason why you know the phrase, and though I would like to take credit for it, the most likely cause of your knowledge is experience. Hang on, now I have you thinking. Your head is cocked slightly to the left and your eyes are pitched toward the right eyebrow. You remember. Back in the 1980s, hair was not the only thing that was big. Interest rates were really high. That was caused by the Fed’s aggressive, anti-inflationary monetary tightening. It happened again in the late 1990s through Y2k. Yes, and, once again in the mid-aughts. Come to think of it, it also happened more recently in 2017 through 2018.

Do you remember what all those tightening regimes had in common? Well, for starters, investors were unhappy and ever praying for the central bankers to ease. Come on, get to it. That’s right, stocks struggled. Despite the prayers and jawboning from politicians, the Fed did what it thought was… appropriate. Despite the speculation, the pundits, futures markets, declining savings accounts of orphans and widows… the Fed carried on with its sometimes-dirty business of rate hiking.

Let’s bring the discussion to current times. The Fed was outright viciously vigilant in its late-to-the-game inflation fighting last year. I don’t have to discuss the effects that had on your portfolio because you know. Did you ever doubt the Fed in 2022? You didn’t, or rather you couldn’t, because everything happened so fast, and you were too busy trying to figure out how to react. But then, everything seemed to change as 2023 rolled in. There was silence on the battlefield. Had the Fed packed up its cannons and headed home? Were the cannonades going to stop permanently? The markets began to think so. Futures quickly began factoring in not only lighter hikes, but also rate cuts. Stocks began to recover. Of course, it was not in a straight line, but the sentiment had shifted. Everything seemed like it was going to be ok, except there was still just one thing missing. The Fed itself, not only didn’t stop its hiking, but it continued to announce its intention to continue the hikes, or at least keep rates high. No shifts, no pivots, and certainly no cuts. The market, however, was counting on something different. The market was… well, fighting the Fed.

You know who wins in that scenario. If you don’t remember, you can consult the charts. I won’t tell you, but I will insert a chart below that shows what happened to the economy during rate-hiking episodes, and I will let you draw your own conclusions. This past week has been full of Fed members talking as hawkish as ever. There was a slight whiff of descent, but for the most part, FOMC members seem intent on continuing to push rates higher. Markets are finally starting to get the message, reflecting it in futures and overnight swaps. You may be thinking that the Fed can’t continue the hikes forever, so there must be a buying opportunity soon. The answers to that are correct and possibly. The best way to know for sure is to wait for the Fed to tell us that the hikes are over. They haven’t yet, and if you disagree, you are simply… fighting the Fed. Be patient.

WHAT’S SHAKIN’ THIS MORNIN’

Intuitive Surgical Inc (ISRG) shares are higher by +8.79% in the premarket after it announced that it beat EPS and Revenue targets by +1.78% and +6.14% respectively. The company experienced solid growth as the market for surgical procedures continues its return to pre-pandemic levels. IN the past 30 days, 76% of analysts changed their price targets 15 up, 1 down, and 5 unchanged. Potential average analyst target upside: +11.1%.

CDW Corp (CDW) shares are lower by -11.19% in the premarket after it released disappointing preliminary sales figures. The company said that IT spending slowed markedly in the quarter as customers were cautious in the face of a potential economic slowdown, and CDW expects the trend to continue. Dividend yield: 1.24%. Potential average analyst target upside: +8.1%.

ALSO, this morning: Elevance Health, Nasdaq Inc, Morgan Stanley, Baker Hughes, and Abbott Labs all beat on EPS and Revenues while Lithia Motors, Synchrony, Citizens Financial, and US Bancorp came up short.

YESTERDAY’S MARKETS

Stocks slipped ever so slightly yesterday as investors responded to complicated earnings released and some very strong words from FOMC members. The S&P500 gained +0.09%, the Dow Jones Industrial Average lost -0.03%, the Nasdaq Composite Index declined by -0.04%, and the Russell 2000 Index slipped by -0.40%. Bonds gained and 10-year Treasury Note yields slipped by -2 basis points to 3.57%. Cryptos gained by +1.13% and Bitcoin climbed by +3.27%.

NEXT UP

• Fed Beige Book will be released this afternoon.
• Fed speakers scheduled for today: Goolsbee and Williams
• After the closing bell earnings: IBM, SL Green, Steel Dynamics, Alcoa Corp, Las Vegas Sands, Tesla, Kinder Morgan, Lam Research, and Zions Bancorp.