When you don't know the answer to a question or simply don't want to answer the question, the easiest avoidance technique is to answer the question with a question.
I ask you: Is there anything worse than that?
That's how I view the Fed's language and follow-up from Wednesday after its latest policy meeting. It answered Wall Street's question on where we're headed next with a question. Bulls didn't appreciate that response, sending most major exchange-traded funds lower. Small-caps and healthcare managed to buck the trend.
To be fair, the Fed did change its language enough to hold rates steady at the next meeting. Flexibility provides the opportunity to hold steady or raise rates without going against the obvious.
While the Fed continues to analyze data, it likely no longer can ignore what we're seeing happen in the regional banking system. In addition, the constant barrage of rate hikes does not feel like the Fed is giving the economy time to react.
We often think of the economy as a freighter on the ocean. Changing course can't be executed on a dime. Reversing course can't be done at a moment's notice. Avoiding hazards requires precision and planning.
In other words: reacting seldom works out well.
With the continuous onslaught of rate hikes, the Fed may have put itself in a position where reaction, not planning, will dictate 2024.
That's not a positive.
Speaking of not positive, how about the regional banks?
After the bell yesterday, PacWest Bancorp (PACW) tumbled 50% as it announced it was exploring strategic alternatives. Stop me if you heard this one before.
That announcement has been a death knell for a regional bank. We're slowly working our way toward a dozen super banks serving the United States. Again, that's not a positive.
The only good news is, it seems depositors will continue to get bailed out. Banks, on the other hand, won't enjoy the same luxury. It's hard to see this water torture end until the market gains confidence the Fed is done raising rates for the foreseeable future.
Perhaps Apple (AAPL) can juice the market tonight. Qualcomm (QCOM) certainly didn't do it yesterday. Management cited lackluster smartphone demand. That doesn't exactly bode well for Apple, but maybe the iPhone can buck the trend.
The biggest takeaway post-Fed, and I realize we have very limited trading thus far, is gold continues to look good. While US Treasuries have recovered, equities aren't shining like gold, and oil's breakdown is troublesome for energy names. Consumers will welcome the relief at the pumps, though, and that drop may be enough to cool some inflation numbers in a way that the Fed can pause now, although I fear the damage is done.
I continue to remain cautious, advocate smaller trader sizes, and adhere to stops. This isn't an environment that will forgive mistakes, whether long or short.
