Stocks reversed yesterday’s losses to finish high as market participants continue to weigh a number of risks, including the pace of inflation and geopolitical tensions stemming out of Russia/Ukraine, against an improving economic backdrop. US weekly jobless claims came in at 187,000, the lowest number since 1969, a sign that the labor market continues improving despite the disruption by Omicron earlier in the year.

Markets Today

  • S&P 500 (SPY): +1.51%
  • Nasdaq (QQQ): +2.22%
  • Dow Jones (DIA): +1.06%
  • Russell 2000 (IWM): +1.15%
  • Volatility Index (VIX): -8.06%
  • Apple (AAPL): +2.27%
  • NVIDIA (NVDA): +9.72%
  • Advanced Micro Devices (AMD): +5.80%
  • Meta (FB): +2.86%
  • Sundial Growers (SNDL): +35.31%
  • Occidental Petroleum (OXY): -3.49%
  • Cleveland-Cliffs (CLF): +12.04%

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Today marks exactly two years since the S&P 500 bottomed in 2020 after the World Health Organization (WHO) declared COVID-19 a global pandemic and governments across the world locked down. Incredibly, from March 24, 2020 to today marks the best two-year run in stock market history.

In geopolitical news, the US and allies will expand sanctions against Russia in response to its unwarranted invasion of Ukraine. The new sanction target hundreds of members of the Russian parliament and the CEO of the largest bank in the country. Most significantly, the US Department of the Treasury warned that any gold-related transactions involving Russia may be sanctionable by US authorities. 

A senior administrator at the Treasury said, “Our purpose here is to methodically remove the benefits and privileges Russia once enjoyed as a participant in the international economic order.” As a reminder, Russia has already been expelled from the SWIFT international payment system, which essentially freezes banks from sending or receiving transactions. 

The initiatives come as President Joe Biden and NATO allies convene in Brussels for a series of summits to discuss the conflict.

In Russia, the stock market reopened after nearly a month-long shutdown to resume trading in 33 securities, including gas giant Gazprom and Sberbank, the largest bank in Russia.  The Central Bank banned short-selling on stocks, however, and prohibited foreign investors from selling stocks. The benchmark MOEX index (IMOEX.ME) gained as much as 10% in early trading.

The White House in a statement early Thursday called the re-opening a “charade,” and noted the government was “artificially propping up the shares of companies that are trading.” Takes one to know one I guess. 

In the US, the Federal Reserve has the inevitable task of reigning in the fastest pace of inflation in over forty years without tanking the economy and plunging us into a recession. To that end, last week, the Federal Reserve raised the interest by 0.25% from near-zero levels for the first time since 2018 and committed to shrinking the balance sheet.

This week, stocks have oscillated between gains and losses after Fed Chair Jerome Powell said the Fed was prepared to raise the interest rate more aggressively than originally telegraphed. He said the Fed was ready to “take necessary steps to ensure a return to price stability. 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

John Lynch, Chief Investment Management at Comerica Wealth Management, said “Policymakers were more hawkish than anticipated, exceeding estimates for interest rates and inflation while reducing forecasts for economic growth. The era of quantitative easing is seemingly over, and quantitative tightening has begun. Though the policy dynamics are shifting, we encourage investors to continue to focus on the long-term fundamentals supporting growth in the economy and corporate profits.” 

Tightening also risks bringing the yield curve, the relationship between short- and long-term interest rates of fixed-income securities issued by the U.S. Treasury, closer to inverting. An inverted yield curve, when the short-term rates exceed the long-term rates, has been a signal of a pending economic recession in the past. Here is what that means: https://www.investopedia.com/terms/i/invertedyieldcurve.asp

Despite the Fed’s move to raise rates providing some temporary clarity to traders who for months have awaited steps forward on monetary tightening, geopolitical turmoil in Eastern Europe and potential economic impact toll continue to muddy the Fed’s already difficult fight to reign in record inflation. In particular, we have seen the price of crude oil and other commodities skyrocket, leading to record gas prices. February’s CPI numbers did not price in these increases, which means next month’s inflation ready is likely to come in worse, probably somewhere around 8.3 – 8.5%. 

Highlights

  • Shares of NVIDIA (NVDA) and Intel (INTC) gapped up after NVIDIA announced it was considering using Intel’s foundries to manufacture its wildly popular chips. For years now, NVDA has been unable to keep up with the demand for their GPUs. For Intel, NVIDIA would be a massive new customer. Shares of AMD and other semi stocks also gapped up in sympathy. 
  • Shares of General Mills (GIS), the third largest food producing company, notched its best two-day performance ever after smashing earnings estimates amid elevated food prices. 
  • Shares of EV-makes Nikola (NKLA), which was famously exposed for fraud by Hindenburg Research, popped 15% after the company said it would start production of its electric trucks on schedule. The company said it expects to deliver 300-500 pickup trucks this year. Personally, once a fraud, always a fraud, will never touch this company. 
  • Minneapolis Federal Reserve Bank President Neel Kashkari said he anticipates seven quarter-point interest rate hikes this year to help mitigate inflation but warned against hiking too aggressively.
  • US-made capital goods registered an unexpected drop in February as shipments slowed, but demand for goods remained robust in a sign manufacturing is likely to continue expanding. The Commerce Department reported new orders for non-defense capital goods excluding aircraft, a closely-watched measure for business expenditures, slipped 0.3% last month. The decline comes after core capital goods orders jumped 1.3% in January.
  • Nickel jumped by the 15% exchange limit for a second straight day in London. The moves place bearish position holders in the spotlight just two weeks after the market was roiled by a historic short squeeze.
  • Amazon (AMZN) will soon be increasing its pricing for Amazon Prime from $119 per year to $139 per year for all members. 
  • Alphabet Chief Executive Officer Sundar Pichai will meet Europe’s antitrust chief on March 30 to discuss competition and digital issues, a European Commission official said on Thursday. Margrethe Vestager has handed out more than 8 billion euros ($8.8 billion) in fines to the world’s most popular internet search engine in the last decade
  • – SoftBank Group Corp is planning to pick Goldman Sachs Group Inc as the lead underwriter on the initial public offering of Arm Ltd that could value the British chip designing company at as much as $60 billion, according to three people familiar with the matter. The IPO comes after plans to sell ARM to NVIDIA for $40 billion fell through amid anti-trust concerns. 
  • 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.

“Don’t be distracted by criticism. Remember — the only taste of success some people get is to take a bite out of you.” –Zig Ziglar