The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Powell’s last meeting
Global news was tame and the latest batch of earnings reports reinforced the prevalent narrative of the earnings season. Overnight and premarket equity futures traded slightly higher. The S&P opened down 15 points and wandered around in mostly negative territory, but without significant variation. Crude continued higher, steepening along the futures curve. Yields climbed significantly across the Treasury curve, especially in the belly of the curve. Capital flow remains light. Flow was 85% today.
Today was pretty much a status quo day. The Strait of Hormuz remains closed and the upward pressure on crude continues. The implied consequences on inflation are being reflected in yields. The indirect pressure on equities results. This is the standard market reaction to previous the-war-is-worsening catalysts. While the war isn’t actually heating up today, the lack of progress is an ongoing negative. As trade remains heavily restricted, costs climb and markets reflect it.
If a bona fide peace is reached, the relief rally will be stunning. Until then, the pressure ratchets up. The concern is that the pressure either cracks financial markets or damages aggregate demand for an extended period. Neither of those outcomes is good. Nobody knows where that point of no return might be. We’re just inching along and seeing what happens.
The FOMC decision was as expected. The Fed held rates as is. Chairman Powell dropped no zingers and divulged no secrets concerning the likely path of the Fed. There were some inside baseball tidbits that Fed-watchers can pour over but the big picture takeaways were few. The one big takeaway is that the Committee is more neutrally inclined than last meeting. This is not surprising. Fed funds futures have erased all the anticipated easings that were priced early in the year. The Fed statement simply confirmed what the market had already suggested.
Powell will remain a voting Governor and steps done from the Chairman’s roll without fireworks. Now we wait and see for Kevin Warsh to become Chairman. If everything goes as expected, Warsh will hold the press conference at the next FOMC meeting, on June 17th.
After today’s close, come four Mag 7 earnings. Alphabet, Amazon, Meta, and Microsoft announce after the close.
Hold on to your hats. See you tomorrow.
-Mike
PS. Amazon, Meta, and Microsoft released just after the close. Futures are slightly higher in response.
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