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Stocks whipsawed from red to green in the final hour of the session to cap off an exceptionally choppy session as market participants continue to digest a hawkish meeting minutes from the Federal Reserve’s latest meeting that suggested more aggressive tightening may be needed to curb the fastest pace of inflation in forty years. The 10-year Treasury yield climbed again to yield 2.652% — the highest level in three years.

Markets Today

  • S&P 500 (SPY): +0.50%
  • Nasdaq (QQQ): +0.24%
  • Dow Jones (DIA): +0.35%
  • Russell 2000 (IWM): -0.32%
  • Volatility Index (VIX): -2.53%
  • HP (HPQ): +14.27%
  • SoFi Technologies (SOFI): -7.77%
  • Nio (NIO): -6.96%
  • Cloudflare (NET): +2.49%

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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.”

Officials “generally agreed” that $60 billion in Treasuries and $35 billion in mortgage-backed securities (MBS) would be allowed to roll off, phased in over three months and likely starting in May. That total would be about double the rate of the last effort, from 2017-19, and represent part of a historic switch from ultra-accommodative monetary policy of the last two years. 

The minutes said, “In their discussion, all participants agreed that elevated inflation and tight labor market conditions warranted commencement of balance sheet runoff at a coming meeting, with a faster pace of decline in securities holdings than over the 2017–19 period.”

The minutes said, “Many participants noted that one or more 50 basis point increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified.” 

Economists at Bank of America, which recently modified its Fed call to include 50 basis point rate hikes in June and July, said in a Wednesday note the newly released minutes show enough evidence to tip the scales towards a double bump increase in May.

In other news, the U.S., European Union and the Group of Seven (G7) readied another round of sanctions against Russia. The U.S. and allies are expected to add additional penalties to more Russian government officials and family members, and Russian-owned enterprises and financial institutions.

 Testifying before the House Financial Services committee on Wednesday, U.S. Treasury Secretary Janet Yellen warned that Russia’s war in Ukraine will stoke “enormous economic repercussions around the world,” including disruptions to the flow of food and energy.

Yellen also said that Russia should be expelled from the Group of 20 major economies forum, and the U.S. will boycott “a number of G20 meetings” if Russian officials participate.

Highlights

  • Shares of Ford Motors (F) continued their free fall, down over -40% in the last three months. 
  • Applications for unemployment insurance fell sharply in the latest weekly data to the lowest level since 1968 and represented a third consecutive week that new claims were below 200,000, with new layoffs and firings staying low compared to pre-pandemic averages.
  • The rate on the 30-year fixed mortgage jumped to 4.72% from 4.67% last week, according to Freddie Mac. The rate has climbed nearly a full percentage point since the first week of March and is up 1.5 points since the start of the year. The increase also marks fastest three-month rise since May of 1994.
  • Warren Buffet’s Berkshire Hathaway in a new filing late Wednesday revealed the company accumulated 121 million shares of HP — an 11.4% stake valued at $4.2 billion. Shares surged more than 14% on the news.
  • The top lawyer at the agency that enforces U.S. labor laws said on Thursday she will ask the National Labor Relations Board (NLRB) to prohibit businesses from requiring workers to attend meetings discouraging unionizing, which would eliminate a major tool employers use to counter union campaigns.
  • Today, Tesla is holding an event to mark the opening of its $1.1 billion factory in Texas, which will help ramp up production of electric vehicles and batteries critical to its growth ambitions.
  • The Biden administration said senior officials held a meeting Wednesday with major automotive leaders including Tesla Chief Executive Elon Musk and General Motors Chief Executive Mary Barra to discuss electric vehicles and charging.

 “Live as if you were to die tomorrow. Learn as if you were to live forever.”

– Mahatma Gandhi