Stocks fell on Wednesday, giving back some of yesterday’s gain, as market participants digested new remarks by Fed Chair Jerome Powell and contemplated the potential that the Fed will take a more aggressive than expected approach to reigning in decades-high inflation. The price of crude oil was on the rise again, with the West Texas Intermediate rising roughly 4% to $114 per barrel. 

Markets Today

  • S&P 500 (SPY): -1.29%
  • Nasdaq (QQQ): -1.44%
  • Dow Jones (DIA): -1.36%
  • Russell 2000 (IWM): -1.36%
  • Volatility Index (VIX): +2.75%
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  • Gamestop (GME): +14.50%
  • AMC: +13.58%
  • ZTE (ZTCOY): +21.97%
  • Gold Miners (GDX): +2.46%

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US stocks have see-sawed between gains and losses this week as investors weight recent, hawkish remarks by Jerome Powell. Speaking at the National Association for Business Economics, Powell said the Central was ready to “take necessary steps to ensure a return to price stability”. This implies the Fed is ready to raise the interest rate by 0.50 basis points or more if warranted. In particular, if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so. And if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well.”

https://www.federalreserve.gov/newsevents/speech/powell20220321a.htm

Last week, the Fed raised the interest rate for the first time since 2018, bringing it up by 0.25% from near-zero levels. Acknowledging that inflation will likely stay higher for longer, policymakers have revised their forecasts higher and now expect six additional hikes (not including the most recent one). Inflation (as measured by core PCE) is expected to be at 4.1% this year, up from a 2.7% projection in December. By 2023, inflation is estimated at 2.6%, up from an earlier forecast of 2.3%. 

Regarding the interest rate, Jim Read, head of credit strategy and thematic research at Deutsche Bank, said “Equities tend to continue their upwards march in the nine months after the Fed begins to tighten, as the strong economy that enabled hikes supports growth. After that, equities become more volatile and are more likely to experience a drawdown. Ten-year Treasury yields start increasing, sending their prices lower, but eventually flatten out and decline as markets put increasing probabilities on the next recession coming. History suggests we should not be worried about near-term impacts.”

In other news, market participants continue to closely monitor developments coming out of Ukraine and the global response to such developments. President Biden is set to travel to Brussell on Wednesday to convene a summit of NATO allies, a meeting that will likely see more sanctions levied against Russia. 

Highlights

  • U.S. new home sales unexpectedly declined for a back-to-back month in February, underscoring some slowing housing activity and demand as rates moved higher and affordability became further squeezed. New home sales fell 2.0% in February compared to January, the Commerce Department said Wednesday. This compared to an increase of 1.1% consensus economists were expecting
  • An index tracking weekly mortgage applications dropped 8.1% during the week ended March 18, the Mortgage Bankers Association (MBA) said Wednesday. This came after a 1.2% decline during the prior week.
  • Toyota Motor and Aurora Innovation have started testing autonomous an autonomous ride-hailing fleet in Texas, with two safety operators and no passengers on board. Toyota’s Sienna minivans, retrofitted with Aurora’s self-driving system, will be tested on highways and suburban streets in the Dallas-Fort-Worth area, with the operation including trips to the airport.
  • Alphabet Inc’s Google said on Wednesday that it would allow Spotify to use its own payment system in its Android app as part of a new pilot. Users who have downloaded Spotify from the Google Play Store will be presented with a choice to pay with either Spotify’s payment system or with Google Play Billing.
  • LG Energy Solution plans to build a battery factory in Arizona to supply to Tesla and other customers, two persons familiar with the matter told Reuters.
  • Sales of McDonald’s ‘McPlant’ sandwich, created with Beyond Meat (BYND) are “underperforming franchise sales”, according to analysts at BTIG Research. This does not bode well for BYND stock, which is already very beaten down.
  • Japanese cryptocurrency exchange Coincheck Inc. announced it will go public in the United States by merging with blank-check firm Thunder Bridge Capital Partners IV Inc. in a deal valued at roughly $1.25 billion.

“The real test is not whether you avoid this failure, because you won’t. It’s whether you let it harden or shame you into inaction, or whether you learn from it; whether you choose to persevere.” –Barack Obama