For quite some time now, we have been talking about elevated cash levels and what to do with that cash
. While we have been advocating for U.S. three-month and six-month paper (T-Bills) for months, it appears that the popular choice has been money market mutual funds. Either way, at least you get paid something for your savings.
In my opinion, while I have some exposure to money market mutual funds, and will continue to keep the daily, week-to-week and monthly costs of living plus emergency money in traditional savings accounts, those accounts, even now, are not competitive. T-Bills, if one can tie some cash up for three months or maybe six, are they way to go. On two levels. One, the cash itself is secure, at least we hope it is. And two: How does one beat a yield of 4.7%? Until the Fed shifts on policy, that is.
Regardless of opinion on what to do with one's cash, cash is certainly on the move. Non-seasonally adjusted data produced by the Fed show a decrease in U.S. banking system deposits of approximately $53B for the week ended March 15 (two weeks ago), dropping deposits at the largest 25 U.S. banks from $17.6T to $17.5T and at smaller banks from $5.6T to $5.4T.
Where is all of that dough going?
Data provided to the Financial Times
by EPFR shows that more than $286B has been moved into money market mutual funds so far in March. Even if all U.S. cash stood still from this point, that would be the largest month for inflows into this kind of investment product since the height of the Covid-19 pandemic. Still from the piece at FT
, Goldman Sachs ( GS
) appears to have been the largest beneficiary of this shift, taking in almost $52B, just since March 9, followed by JPMorgan Chase ( JPM
) and Fidelity at a rough $46B and $37B, respectively.
Nothing wrong with money market mutual funds. In fact, these funds usually bear enough exposure to T-Bills as they are constructed as low-risk vehicles. Still, not confusing money market accounts with money market mutual funds. Mutual funds are considered investments and are not guaranteed (not even up to $250K) by the FDIC, whereas your directly owned short-term U.S. paper, while not guaranteed by anything other than the good faith and credit of the U.S. government, is probably safe as long as there is a federal government, a Treasury Department and a national central bank. Of course, I cannot say that I am never wrong.
The "sort-of" rally continued for equities on Monday, while Treasuries sold off and Fed Funds futures moved toward pricing in a potentially more hawkish Fed than how these markets went into this past weekend. Fed Funds futures are now pricing an almost 50% chance for another 25 basis point increase to be made the target range for the Fed's benchmark rate on May 3. This took the yield for the U.S. 10-Year Note up to 3.54% and the yield for the U.S. 2-Year Note up to an even 4% by late Monday.
Both yields are trading slightly higher through the zero-dark hours, allowing the spread between the two to reassert to a minor degree, the inversion that had started to unwind late last week. This morning I saw this spread at -47 basis points. While the above found some footing as First Citizens ( FCNCA
) agreed to acquire the loans and deposits of the failed Silicon Valley Bank ( SIVB
) at a discount, elsewhere, a contracting U.S. Dollar Index gave a boost to both U.S. cyclicals and small-caps as well as WTI Crude Oil.
Still, despite the mostly positive price discovery up and down Wall Street, activity on Monday was rather quiet. Our two broadest indexes did not move all that much. While the S&P 500 gained just 0.16%, the more tech-focused Nasdaq Composite gave up 0.47%. The winners on the index level were the KBW Bank Index (+2.54%), the Dow Transports (+1.32%), and the Russell 2000 (+1.08%). The big loser was the Philadelphia Semiconductor Index at -1.21%.
Eight of the 11 S&P sector SPDR ETFs shaded green for the session, but to be fair, only Energy ( XLE
) and the Financials ( XLF
) at +2.13% and +1.39%, respectively, realized a gain or loss of more than a full percentage point. Cyclical sectors took the top four slots on the daily performance tables, while both "growth" sectors took places 10 and 11.
Winners beat losers at the NYSE by a rough 5 to 2 and at the Nasdaq by about 3 to 2. That said, while advancing volume took a 75.1% share of composite NYSE-listed trade, it took only a 43.1% share of that metric for Nasdaq listings.
Again, the trading volume was not there to support the rally. For NYSE-listed securities, aggregate trading volume decreased 7.6% day over day from last Friday and also decreased 20.8% from a week ago Monday. For Nasdaq listings, trading volume was down only slightly day over day and 12.9% from the week ago comp. As a matter of fact, Monday was the slowest trading day since March 8 for the S&P 500, and the slowest trading day for the Nasdaq Composite for the calendar year 2023 to date.
Portfolio managers are almost frozen. They don't trust the rally. They are not convinced to get out.
You want to see this market move? I showed you this chart yesterday. Take another look:
You're going to need to see the S&P 500 either crack its 50-day simple moving average SMA to the upside, or crack its 200-day SMA to the downside. Either of those events will provoke both portfolio managers and their algorithms to adjust their equity exposure. (I really should put algorithms first, shouldn't I? These guys no longer know exactly what they are doing until their computer informs them.)
No Way, Dude
"SVB (Silicon Valley Bank) failed because the bank's management did not effectively manage its interest-rate and liquidity risk, and the bank then suffered a devastating and unexpected run by its uninsured depositors."
-- Federal Reserve Board Governor Michael Barr
Well, you could just knock me over with a feather. At least we know our central bankers are on their A-game this week.
It's a Small, Smaller World
In a memo to staff on Monday, Walt Disney Company ( DIS
) CEO Bob Iger wrote: "This week, we begin notifying employees whose positions are impacted by the company's workforce reductions. Leaders will be communicating the news directly to the first group of impacted employees over the next four days. A second, larger round of notifications will happen in April with several thousand more staff reductions, and we expect to commence the final round of notifications before the beginning of the summer to reach our 7,000-job target."
Interestingly, the Wall Street Journal is reporting that Disney has eliminated the "Next Generation Storytelling and Consumer Experiences" unit. This is or was the part of the firm that was developing strategies for use in the metaverse. This was a small unit within Disney, and all 50 or so employees within the unit are said to have been let go.
Readers will recall that in February, Disney had announced, under pressure, that it would make $5.5B in spending while restructuring the company and eliminating the 7,000 positions mentioned above.
Public interest in the metaverse has simply not developed as quickly as investment in the space. Meta Platforms ( META
) recently realized this and found religion. I made my first investment (ever) in META on that news. Now, Disney makes that turn.
Already long DIS, I see $91 and $86 as where I am interested in adding. I do not need to add here.
On Monday, Elliott Management withdrew its candidates for nomination to the Salesforce ( CRM
) board of directors. The activist investor, one of five that had become involved with this "cloud king," made a quick U-turn. In a joint statement, Elliott Management's Jesse Cohn showed an appreciation for Salesforce's efforts and plans to deliver profitable growth, while still planning to responsibly repurchase common shares.
Salesforce CEO Marc Benioff expressed his appreciation for Elliott's involvement and "constructive ideas." Is all as good as it sounds? What we care about here is the stock and the stock is up 44.25% year to date.
On March 2
, I gave you a $179 pivot, and a target price of $206....
Readers will see that the breakout that I had expected, stalled in mid-March, but the stock found support at its 21-day exponential moving average, never coming close to testing its 200-day SMA as it had twice in February.
My pivot and target both stand. I still see potential for $223, as I have mentioned on Doug Kass's Daily Diary
, which I am sub-hosting today.
That said, the stock did stall at $195 in very early March:
Given that this is a nearly perfect 38.2% Fibonacci retracement of the stock's November 2021 through December 2022 selloff, I have no problem taking a profit on a partial at that level if it slows down at that spot on a second attempt. I would kick myself if a double-top reversal developed there and I sold nothing.
Economics (All Times Eastern)
08:30 - Goods Trade Balance (Feb-adv): Expecting $-90.4B, Last $-91.5B.
08:30 - Wholesale Inventories (Feb-adv): Expecting -0.1% m/m, Last -0.3% m/m.
08:55 - Redbook (Weekly): Last 3.2% y/y.
09:00 - Case-Shiller HPI (Jan): Expecting 3.6% y/y, Last 4.6% y/y.
09:00 - FHFA HPI (Jan): Expecting -0.2% m/m, Last -0.1% m/m.
10:00 - CB Consumer Confidence (Mar): Expecting 101, Last 102.9.
10:00 - Richmond Fed Manufacturing Index (Mar): Expecting -9, Last -16.
16:30 - API Oil Inventories (Weekly): Last +3.262M.
The Fed (All Times Eastern)
10:00 - Speaker: Reserve Board Gov. Michael Barr.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open
: ( MKC
) (0.50), ( SNX
) (2.85), ( WBA
After the Close
: ( LULU
) (4.26), MU (-0.81)
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