Making Sense of a Wild Week in the Markets
The S&P 500 (SPY) has had a tough week, with Fed Chair Jerome Powell's semiannual testimony before the Senate Banking Committee and the release of the Fed minutes.
Another week of doom for the S&P 500, SPY. The Senate Banking Committee heard the semi-annual testimony of Fed Chair Jerome Powell. The January job openings summary was available. A surprise run at a Silicon Valley bank put the entire financial indicator under scrutiny. We also had the February employment report. We have a lot of information to go through, so let's get on with it!
(Please enjoy the updated version of my weekly comment originally published March 10, 2023 in POWR Stocks under $10 newsletter.
This week was so busy that I am taking each day as it comes. When you read each day's name, feel free to visualize the ticking clock starting at '24'.
It is quiet at the Western Front.
The first day of Powell’s testimony before Senate Banking Committee finally gets things moving. What was the biggest takeaway of the day?
"The latest economic data are stronger than anticipated, suggesting that the final level of interest rates will be higher than originally expected."
Powell stated that inflation is still high and the labor force is strong. He also said that although inflation has been slowing in recent months it still needs to reach 2%.
His comments triggered a 1.5% market selloff, with all sectors finishing lower for the day.
Powell reiterates his message that the U.S. central banks is likely to raise rates more than anticipated. However, after Tuesday's selloff Powell goes off-script and stresses that policymakers have not yet decided how much they will increase their interest-rate increases later in the month.
"If -- and I emphasize that this is not a decision -- but if the whole of the data indicated that tightening faster is justified, we'd be willing to accelerate the rate of rate increases.
Powell refers to the few important economic reports that are available, such as the January reading on U.S. Job Openings, February's Employment Report, and the next week's Consumer Price Data.
We also receive the first of these reports on Wednesday -- the most recent Job Openings and Labour Turnover Summary (JOLTS), from January. These show that the number of job opportunities fell to 10.82million, compared with the 11.2 million in the previous month.
According to the Bureau of Labor Statistics, construction, leisure, hotel and finance industries saw the largest declines in job openings.
Stocks did slightly better with the S&P 500, Nasdaq and Dow closing slightly higher and slightly down respectively.
The market was expected to remain quiet today with Powell's testimony finished and no major reports due to be published.
Instead, Silicon Valley Bank (SIVB), a preferred bank for many startups, is shoving itself in the face after it announced that it would liquidate its entire short-term securities portfolio and raise $2.25 billion of capital.
This was not a problem in and of itself. However, the CEO attempted to assure investors that the bank had ample liquidity. He stated to them that panicking is the last thing they need.
There is no better way to get a bank loan than this!
All of the banking sector is under scrutiny, with many stocks falling by double digits. The S&P 500 closes below its 200-day moving mean.
Another hot report, another jobs release. In February, 311,000 jobs were added to the economy, more than was expected at 215,000. The unemployment rate rose to 3.6% due to rising inflation which forces more people into looking for work.
The report's bright spot was the 4.6% wage growth, which is slightly less than the 4.7% expected. But, it's still a lot higher than the pre-pandemic levels... which is going to be a problem for the Fed.
Oh, and the bank I mentioned earlier... Friday morning, FDIC closed it down. This is the largest bank to go since Washington Mutual collapsed back in 2008. It's not great!
Wow! What a week. Here's a chart that will show you where things are at the moment.
It is possible that the Federal Reserve could increase its rate by 50 basis points after having slowed to 25 basis point at the last meeting.
What is the reason that caught my attention? Because the Fed hasn’t stutter-stepped after a rate hike cycle since 1990.
What would a 50-bps increase in interest rates on March 22 have on the economy?
Is it an automatic siren indicating that the recession is imminent? It is not.
It would be a 'Oh, good, we're definitely getting a soft landing'? It's definitely not.
We don't actually know what it means because we haven’t seen it happen in the past. We have to be cautious because we don’t know what it would mean.
We will continue trading and will use our edge to find stocks below $10 that are ready for explosion.
This week's volatility was not what you expected, so get ready for the boom!
CPI and PPI are scheduled for Tuesday and Wednesday. We also have quadruple witching Friday (an option event that often comes with volatility) and the next Federal Reserve meeting the following week.
Stocks could sink if there is another bank that goes under, or a more alarming inflation report. We'll be careful and keeping an eye on the next big winner, as I mentioned earlier.
These stocks have the right stuff to be big winners even in this tough stock market.
Because they are all low-priced companies that offer the greatest upside potential in today’s volatile markets.
They are also all Top Buy Rated Stocks according to our highly acclaimed POWR Ratings system. Their key areas of growth, sentiment, and momentum are outstanding.
All the best!
SPY shares closed Friday at $385.91, down $-5.65 or -1.44% SPY shares have gained 0.91% year-to-date compared to a % increase in benchmark S&P 500 index over the same period.
Meredith Margrave is the Author
POWR Growth and PoWR Stocks Below $10