Stocks closed mostly lower yesterday in a bumpy day of trade as investors weighed the impact of yet a third failed regional bank… largely expected. The so-called VIX fear gauge remained relatively subdued, despite the turmoil, showing the resilience of the stock markets.
Enjoy the cruise. My regular readers know well my fondness for my younger days on the family boat on which I learned valuable life… and investment legends at the helm. Imagine going on a long cruise with 3 generations of your family and throw in 2 aunts with 2 uncles in tow. Plying through the aquamarine waters of South Florida, the Keys, and the Bahamas could be a magical experience. The massive Caterpillar diesel engines with their low, steady growl and the woosh of small waves lapping against the sleek bow provided a sonic canvas for the steady stream of Southern French and Latin/Catalan pop music, and it was absolutely mesmerizing. Passengers dotted the decks sunbathing, reading romance novels or simply staring out into the vast nowhere while young children ran up and down below deck touching everything they were not supposed to. My preferred spot was at the helm, where I was most often perched alone except the occasional brief visitor bearing a cold soda.
You could sail smoothly for hours as long as you minded the maps, radars, and depth sounder, which was simpler than one would think once you got the hang of it. In fact, we could have even used an autopilot, though I preferred to handle the job myself. Sounds relaxing, doesn’t it? It certainly was… until it wasn’t. All cruises end in port when the boat needed to be docked. The docks were often crowded with very narrow approaches. As we advanced to our assigned slip, the boat had to be turned around and backed in. Remember, this is a boat, not a car, which means no k-turns. It also means that it was subject to shifting breezes and currents which would push and pull the boat to and fro. At that point the music was turned down and everyone on board was staring at… me. My father would stand right behind me and my uncle behind him. Both would attempt to help me by shouting pointers, often opposing each other. In other words, they were useless to me and, in fact, an unwelcomed distraction. I had to avoid touching the multi-million-dollar yachts that studded the entire marina while the wind laughed in my face. All that relaxing stuff from above dissolved in seconds as beads of sweat almost always ran into my eyes and stung away the calm. The good news is that I got pretty good at handling her, and I ultimately managed to get her in without any damage, though not every docking was pretty.
I am reminded of this smooth sailing punctuated by tense and potentially life-threatening docking as I contemplate the Fed’s FOMC meeting this week. Though it has been painful for our portfolios these past 13 months, it has been smooth sailing for the Fed. With inflation where it was and the reluctant backing of the markets, the Fed simply had to hold on to the helm. They only needed to look at the economic numbers and the markets’ expectations to make slight adjustments to their course, which they knew was headed… well, up. We knew that those rates were going to, at least, end up between 4.5% and 5.5% because not only do we know that most economists expect that range to be in the restrictive zone, but also… the Fed literally told us. Similar to my family cruises, that was smooth sailing. Now, with the Fed Funds’ target rate set at 5.0%, inflation easing, economic growth wavering, banks failing, and stock markets teetering, we have arrived at our destination. The only thing left for the Fed to do now is to carefully dock this behemoth US Economy and avoid total disaster. As you might imagine, as you get closer and closer to other objects, small moves on the throttles and helm produce what appear to be large impacts on the course of the boat, with the odds of failure increasing by the second.
Folks, the Fed is in a very tight spot right now. Three bank failures have caused the majority of the banking community to tighten up their vaults, tempering lending. That tempering has and will continue to place further drag on economic growth. Consumer confidence is starting to wane and consumers single handedly kept the economy moving forward in the first quarter as evidenced by last Thursday’s GDP release. Businesses have already cut back on spending and that trend, based on earnings announcements, looks like it will continue. The Fed’s next move could result in easing the stern into just the right position to fit into the very narrow slip. Too much pressure on the controls could result in a costly collision. Oh, and if the wind picks up, another bank fails or something of the sort, it could push the bow of the boat right into one of the other boats which are too close for comfort. I hope the Fed enjoyed the cruise up to this point. The FOMC meeting starts today, and they are at the helm now. I am going to have a seat in the stern, open a cold soda, and turn up the music. I like this song; I think it’s called “Djobi Djoba”.
WHAT’S SHAKIN’ THIS MORNIN’
Arista Networks, Inc (ANET) shares are lower by -9.40% in the premarket after the company announced that it beat analyst targets in the first quarter. The company relayed that it was expecting a slowdown in sales growth of its cloud computing offering with declining demand from its large customers in the wake of last year’s strong surge. This announcement may impact other companies in the cloud computing space. Potential average analyst target upside: +5.2%.
NXP Semiconductors NV (NXPI) shares are higher by +4.81% in the premarket after it beat on Revenue but missed on EPS targets. The strong sales beat resulted in the companies raising of its current quarter guidance beyond analyst estimates. The company, which is a top supplier to the auto industry, is cautiously optimistic about the second half of the year. Dividend yield: 2.44%. Potential average analyst target upside: +5.2%.
ALSO, this morning, DuPond de Nemours, Cheniere Energy, AmerisourceBergen, Eaton, Zebra technologies, IDEXX Labs, Zimmer Biomet, Marathon Petroleum, Pfizer, Uber, Marriott International, Molson Coors, Howmet Aerospace, T Rowe Price, and AGCO all beat on EPS and Revenues while Enterprise Products Partners and Incyte came up short.
YESTERDAY’S MARKETS
Stocks gave up mid-session gains and closed mostly lower yesterday as investors digested a third bank failure. The S&P500 Index slipped by -0.04%, the Dow Jones Industrial Average was off by -0.14%, the Nasdaq Composite Index declined by -0.11%, and the Russell 2000 Index inched higher by +0.01%. Bonds declined and 10-year Treasury Note yields gained +14 basis points to 3.53%. Cryptos declined by -4.78% and Bitcoin pulled back by -5.67%.
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