To Hike, or Not to Hike
In this issue of the Peel:
Market Snapshot
Happy Wednesday, apes.
All smiles on Wall Street as a rally in technology stocks drove the Nasdaq and the rest of the market higher. Traders are parsing through earnings and realizing that the AI craze isn’t going anywhere. Google parent Alphabet exceeded expectations, while Microsoft and Texas Instruments underperformed.
The S&P hit its highest level since April of 2022 and is just 5% shy of its all-time high. We’re making history here, folks! The Dow Jones rose for the 12th day in a row, which is its longest winning streak since 2017. This all comes on the night before Jay Powell delivers the official Federal Funds Rate decision.
Treasuries gained, and yields dropped, as they are more sensitive to Federal Reserve moves, while the dollar halted a 5-day advance.
Let’s get into it.
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Banana Bits
Macro Monkey Says
To Hike, or Not to HIke
This is the question facing JPow and the Federal Reserve Board at today’s Federal Open Market Committee (FOMC) meeting. The market is still confident that the target rate will be hiked by 25 bps, pushing borrowing costs to 5.25 - 5.50%, which would be the highest since February 2001.
The market is generally accurate this close to the decision, so there’s no controversy there. The more interesting question is what the Fed decides thereafter.
While the market shows strong conviction on the forward rate path, economists differ in their opinions on when the current hiking cycle will end.
"Don’t just take my word for it; hear from the experts themselves, like Michael Gapen ... Then there’s the opposite approach, like Kathy Jones ..."
?Don’t just take my word for it; hear from the experts themselves, like?Michael Gapen, U.S. economist at Bank of America,?who forecasts a 25 bps hike today, not necessarily going against the grain there. He also believes the Fed will maintain its current rate guidance as the Fed is not quite ready to end tightening.
Then there’s the opposite approach, like?Kathy Jones, Chief Fixed Income Strategist at Charles Schwab.?In her view, the central bank has gone far enough and could be in danger of tipping the economy into contraction. According to Jones, “The Fed should be done already, they’re walking a difficult line here.”
More meaningful than conjecture are the actual words from Mr. JPow himself, which we will get at the Fed’s post-decision press conference.
That’s where a lot of the action happens in the equities and bond markets, with traders hanging on to every syllable from the Chairman, sending stocks flying up or down in a matter of seconds. Everybody will be looking for clues as to whether the Fed feels they’ve done enough to pause or whether they will continue pushing rates higher.
?"Everybody will be looking for clues as to whether the Fed feels they’ve done enough to pause or whether they will continue pushing rates higher."
The Fed strongly indicated at its prior meeting to expect at least two more hikes this year. Of course, last month’s news doesn’t necessarily have to apply today as things evolve rather quickly. However, since that meeting, a flurry of data has been released showing that the economy has absorbed rate hikes pretty well and could probably eat a few more.
We will have to be patient as the next meeting isn’t scheduled until September. Either way, the market doesn’t seem to care, as stocks have been on a tear this year, particularly in the past few weeks.
Takeaway:?There won’t be too much shock-value at today’s FOMC meeting with mostly everyone with a pulse who’s been paying attention expecting a 25 bps hike. Economists, bankers, and traders differ, however, in the path of rate hikes to end the year.
What's Ripe
Aurora Acquisition Corp (AURC)?↑ 223.03% ↑
Banc of California (BANC)?↑ 11.17% ↑
What's Rotten
Spotify Technology (SPOT)?↓ 14.27% ↓
Rimini Street (RMNI)?↓ 35.82% ↓
Data Peel
Thought Banana
Billionaire Bad Boy Club: Octogenarian Edition
Joe Lewis is many things: British billionaire, owner of the Tottenham Hotspur soccer club, and now potentially convicted felon.
The British Bruce Wayne has been officially arrested and formally charged with insider trading in the United States. You’d think that the federal government would leave an 86-year-old alone, but apparently, even the elderly can’t get away with passing on inside information to friends and family.
Lewis is being charged with abusing his position as a large investor in various companies to provide stock tips to everyone from his personal pilot to his former lovers. In fact, the government claims that he loaned his pilots $500k each for them to purchase shares in a company before a major news event became public.
The big question is, why? For someone who is already a billionaire, it’s hard to discern his motivation to provide inside information except for mere shits and gigs.
?"... it’s hard to discern his motivation to provide inside information except for mere shits and gigs."
It didn’t take long for Lewis’s lawyers to bark back, saying that the government made an “egregious error in judgment” by charging Lewis and that the octogenarian is of “impeccable integrity and prodigious accomplishment.”
Prosecutors are saying that Joe was involved in the shenanigans for over 8 years. Not sure who looks worse, Joe Lewis for insider trading that long or the US government for taking that long to realize it.
"Another story alleges that Lewis told his then-girlfriend in South Korea to buy stock in Solid Biosciences because he knew about an upcoming clinical trial announcement."
?Another story alleges that Lewis told his then-girlfriend in South Korea to buy stock in Solid Biosciences because he knew about an upcoming clinical trial announcement. He loaned her $700k to purchase the shares before the announcement, and she made a profit of $849k afterward. He engaged in the same behavior with personal assistants as well.
Before becoming a household sports figure in the UK, Joe Lewis made a humble living in the restaurant business, eventually building a chain before pivoting into currency trading in the 1970s. He made it big by betting against the British pound and Mexican Peso in the 90s and then began diversifying into various sectors such as real estate, sports, luxury hotels, and beaches.
Perhaps having a billion dollars isn’t satisfying in and of itself. In Joe Lewis’ case, it seems like that patented insatiable desire for more when it comes to wealth just kicked in.
Banana Brain Teaser
Yesterday?—?Find a number less than 100 that is increased by one-fifth of its value when its digits are reversed.
Answer: 45
Today?—?Which word in Group B can be added to Group A? Why?
Group A: forty, grape, react, rouge
Group B: carat, claim, coast, crass, curse
Shoot us your guesses at?[email protected] ?with the subject line?“Banana Brain Teaser”?or simply?click here to reply!
Wise Investor Says
“If companies tell us more, insider trading will be worth less.”?— James Surowiecki
How would you rate today’s Peel?
Happy Investing,
Patrick & The Daily Peel Team
Next Trend Realty LLC./wwwHar.com/Chester-Swanson/agent_cbswan
1 年Thanks for sharing.