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Concerns over inflation, geopolitical tensions, and the Federal Reserve’s monetary policy path forward remain at the center of investor’s mind and led stocks to decline today. Treasury yields rose again, with the benchmark 10-year Treasury yield hitting 2.7%, the highest level in over three years. The price of oil declined once again to roughly $95 a barrel, the level prior to Russia’s invasion of Ukraine. 

Markets Today

  • S&P 500 (SPY): -1.71%
  • Nasdaq (QQQ): -2.37%
  • Dow Jones (DIA): -1.20%
  • Russell 2000 (IWM): -0.67%
  • Volatility Index (VIX): +15.17%
  • Apple (AAPL): -2.55%
  • NVIDIA (NVDA): -5.23%
  • Alphabet (GOOGL): -3.35%
  • Microsoft (MSFT): -3.88%
  • Tesla (TSLA): -5.09%
  • Occidental Petroleum (OXY): -6.28%
  • Bilibili (BILI): +7.16%
  • System1 (SST): +7.43%

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Last week, the Fed’s meeting minutes showed officials want to start reducing their balance sheet by around $95 billion a month, a process known as quantitative tightening (QT). The opposite of quantitative easing, QT is a contractionary policy meant to decrease the amount of liquidity within the economy. 

The minutes said, “Notwithstanding uncertainties associated with geopolitical developments, many central banks continued to signal intentions to move ahead with reducing policy accommodation to address elevated inflation.”

On Tuesday, the Bureau of Labor Statistics will release the latest consumer price index (CPI), which is expected to show an eye-watering +8.4% year-over-year increase in prices, the fastest pace of inflation since 1982. This comes as Federal Reserve officials increasingly talk about implementing a larger-than-average 50 basis point hike to the interest rate to help bring down prices. The producer price index (PPI), which measures the changes over time paid to producers, will be release on Wednesday.

Seth Carpenter, Global Chief Economist for Morgan Stanley, said “If we think about recent cycles that are comparable, I think about 2018, 2019, the Fed was raising interest rates and running off its balance sheet. That should sound very familiar. But at the end of 2018, risk markets started to crack and the Fed reversed course really quickly. The key difference now between those two episodes is they are trying to pull inflation down. They’re not trying to keep it from rising,” he added. “And so what that means is they’re trying to slow the U.S. economy. They’re trying to slow growth so much that inflation pressures come down but not so much that they tip us over into recession. And that’s tricky.”

While inflation remains front and center, the start of the latest quarterly earnings season will show how companies have navigated elevated prices and the effects of inflation on growth. As of Friday, Wall Street analysts expected S&P 500 earnings to grow 4.5% for the first quarter over last year, according to FactSet data. If realized, this would mark the slowest rate since the fourth quarter of 2020.

David Kostin, Chief US Equity Strategist at Goldman Sachs, said “Guidance and management commentary will be particularly important sources of information this quarter given the earnings uncertainty going forward. Consistent with prior quarters, guidance has recently been a key differentiator of stock performance.”

Highlights

  • NVIDIA (NVDA) stock fell after analysts at Rober W Baird slashed rating from outperform to neutral and the price target from $360 to $225, citing falling demand and rising cancellations of existing orders.
  • Chicago Federal Reserve Bank President Charles Evans joined the chorus of Fed speakers publicly discussing prospects of a 50 basis point interest rate hikes as inflationary pressures remain elevated. “Fifty is obviously worthy of consideration. Perhaps it’s highly likely even if you want to get to neutral by December,” Evans said in remarks before the Detroit Economic Club on Monday.
  • Microsoft (MSFT) shares were lower intraday on Monday after UBS analysts suggested the tech company’s Office 365 business would begin to see a sales slowdown following a work-from-home spike in business.
  • U.S. consumers are now looking for an even more marked increase in prices next year than previously anticipated, according to a new survey from the New York Federal Reserve released Monday. Consumers anticipate inflation will rise by 6.6% in the next year, according to a survey by the New York Fed, representing the fastest expected rate since the survey first began in 2013. In February, consumers expected year-ahead inflation would rise by 6.0%.
  • Shares of Twitter (TWTR) dropped but clawed back losses after Tesla (TSLA) CEO Elon Musk opted not to join the board after buying a more than 9% stake in the company.
  • Ford Motor Co said on Monday it has signed a preliminary deal to buy lithium from a Lake Resources NL facility in Argentina, marking the first time the automaker has publicly announced where it will procure the electric vehicle battery metal.
  • Chinese EV-maker NIO announced it was halting production amid a COVID lockdown spreading in China.
  • Apple Inc has started making the iPhone 13 in India, the company said on Monday. The phone is being produced at a local plant of Apple’s Taiwanese contract manufacturer Foxconn

“You have brains in your head. You have feet in your shoes. You can steer yourself any direction you choose.” -Dr. Seuss