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March 20th, 2023
Bank Headlines And The Fed To Dominate The Week
The St. Patrick’s Day rally never took off and instead, the market sold off yet again. It’s important to keep some perspective though. The S&P 500 (SPY) on a weekly chart finished higher from the open last week.
Despite a difficult week, the SPY still held an upward trend going back to October of last year. This upcoming week will be no shortage of volatility though as the Fed once again takes the stage.
Since the Fed’s media blackout that happened before the meeting, we haven’t yet heard what Fed Chairman Powell and the rest of the voting members think about the latest banking crisis.
We do know that UBS agreed to bail out ailing Credit Suisse for nearly $3.25 billion in order to calm turmoil. Global markets rose in the Sunday overnight session.
What is the Fed likely to do this week?
Well, the Fed can’t seem to help itself from getting involved in everything. Quantitative Easing is back with the Fed’s injection of $2 trillion into the banking system to make sure it doesn’t fail.
With that, the Fed stays on target with a 25 basis point increase in my opinion. If they halt increases, they are signaling to the world that the banking fiasco is indeed a crisis. Granted, if they keep raising rates we could see more banks fail, but with the new lifeline that has been extended, I think we will return to a sense of normalcy.
SVB and the other banks seem to want to prove they can’t behave without government regulation, but the lifeline should help the industry in the short term.
This also helps the tech sector and as such, I expected to see bullish moves continue with the Nasdaq 100 (QQQ). Let’s not overlook the 13% gain Bitcoin has been in the last five days.
So with that, let’s get ready for the week ahead.
Tuesday – 10:00 am EST – Existing Home Sales – While this is an important number to return to every so often, I believe this report will be overshadowed by the Fed announcement. That said, the annual rate is expected to rise to 4.17 million, up from 4.0 million. However, that’s a -36.9% change year-over-year.
Wednesday – 2:00 pm EST – FOMC Announcement (2:30 pm EST Press Conference) – The consensus is a 25 basis point increase with the Federal Funds Rate Target Range to move to 4.75 to 5.00%. However, what does the Fed have to say about the banks?
Thursday – 8:30 am EST – Jobless Claims – This continues to be an area that the Fed struggles with. Despite what you hear or read, jobless claims are stuck at lower levels and continue to surprise the market. This week the market is expecting an uptick with jobless claims going from 192k to 195k, and the 4-Week Moving Average to be at 196.50k. There are still more jobs available than workers.
Thursday 10:00 am EST – New Home Sales – Again, I doubt this will make that much of a story this time around, but the annualized rate is expected to fall back from 670k in January to 645k in February.
Friday – 8:30 am EST – Durable Goods Orders – Forecasters are expecting durable goods to increase 1.5% month-over-month in new orders, however, excluding transportation drops that to a 0.3% increase.
Friday – 9:45 am EST – PMI Composite Flash – The Service Index popped back higher than 50 in February for the first time in eight months. This is why the Fed has been speaking about wage inflation, specifically around the service industry. Manufacturing has been in the sub-50 range for the last four months, showing a continued contraction.
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