Fed chair puts bulls in timeout

Stocks were trampled by Jerome Powell yesterday… all part of his plan to fight inflation. Investors, already on alert going into next week’s inflation numbers are now on HIGH alert after the Fed Head provides clarification on his stance.

Like a moth to a flame. It has a nice ring to it, but maybe it’s a bit too harsh. Or is it? Let’s start again. I love dogs. I love them for many reasons which I will not enumerate to you this morning. But one of the things that interests me about them is just how predictable they are in certain situations. No matter the breed, no matter how smart your dog is, and despite your dog’s intensity of training, you can count on a dog’s certain attraction to a bone. Don’t believe me? Try it by putting a fresh bone down in front of your dog and see how long you can get him or her to NOT take it. Got the picture? Ok, let’s move into the meat of my point.

You can’t say I didn’t warn you. If you didn’t listen to Fed Chair Powell speak yesterday; you can probably speculate what he said by observing the markets. They were very much in the green, on track to add another winning session. And then they weren’t. Why? Because Powell said that he wouldn’t hesitate to raise interest further if necessary. Stop, and please answer this question aloud. Are you surprised? If your answer is yes, please go to this link and read any random daily market note that I have written in the past 2 years (https://www.siebert.com/blog/ ), but I know you didn’t answer “yes,” so you can keep reading.

Let’s establish the basic fact pattern here. Fact: yields on treasuries have fallen recently, which is a form of monetary easing, but at the hands of the market. Fact: stocks have rallied strongly in the days after the Fed’s FOMC meeting last week in which policy remained unchanged but with the Chairman’s comments being no-so-hawkish. Fact: consumer confidence, which leads to increased demand and inflation is higher when the stock market rallies, making it also a form of monetary easing. Fact: inflation is higher than the Fed’s well-publicized target. Fact: the economy is strong at the moment, despite forecasts for a potential downturn in future quarters. Fact: unemployment has ticked up slightly but is still quite low by historical standards. Fact: the Fed posted in black and white its prediction that Fed Funds would be higher by +25 basis points by year end. Fact: the market is predicting that rates will remain right here until next summer, at which time they will start to decline.

Given this fact pattern, wouldn’t you expect the Fed Chairman to strike a hawkish tone in his talk? Has your dog grabbed the bone yet? You have often heard me say that the market is errant and that it seldom does what is convenient for you at the moment. It is mostly unpredictable, but sometimes, it can be quite predictable. Yesterday’s obvious response to the obvious stimulus is one of those predictable events. Folks, nothing has changed since last month, last week, or even Tuesday. The Fed is still in “wait and see” mode, and financial easing is not in the plan for the near future. If those plans change, you can count on the Fed to let us all know. The Fed always does. Just like my Eloise (the switched-on Cavapoo), and before her, Noodle (the smart-as-a-whip Yorkie), and Chloé (the lovable and sweet-as-sugar Cocker Spaniel) always, always went for the bone. Stay focused on your long-term investment plan, don’t get distracted.

WHAT’S WAGGING ITS TAIL IN THE MARKET THIS MORNING

Hologic Inc (HOLX) shares are higher by +2.23% in the premarket after it announced that it beat EPS and Revenue estimates last quarter. Current and full-year guidance came in above analyst expectations but Q1 guidance came up slightly short. 9 analysts have lowered price target estimates in the last month, while 8 kept their targets unchanged. Potential average analyst target upside: +22.4%.

Wynn Resorts (WYNN) shares are lower by -5.24% in the premarket after it announced that it beat EPS and Revenue estimates last quarter. While its Las Vegas and Boston properties delivered record quarterly EBITDAR, its Macau properties came up short. Dividend yield: 1.01%. Potential average analyst target upside: +32.2%.

YESTERDAY’S MARKETS

NEXT UP

• University of Michigan Sentiment (Nov) is expected to be unchanged from last month at 63.8.
• NEXT WEEK: still more earnings along with Consumer Price Index / CPI, Producer Price Index / PPI, Retail Sales, housing numbers, and regional Fed reports. Check back in on Monday for weekly, downloadable economic and earnings calendars.