Just a quick note to readership. Thank you to those who reached out last week and over the weekend. The fact that enough of you actually miss me when I am gone, or when my schedule impacts my availability to write. touches my heart. Appreciated!
I know that I did not get a chance to respond to those who reached out yesterday as I spent 25 hours behind the wheel over the past two days driving through some awful weather and some equally awful traffic. Trust me, I did read your messages, but I also needed to sleep, and this note is the first chance I have gotten to sit down at my actual desk with my usual resources around me in a week.
I've got some work to do, but not before acknowledging the wonderful readers here at Real Money and Real Money Pro.
Marketplace
Despite the headline news created by the acquisition of most of First Republic Bank ( FRC) by JPMorgan Chase ( JPM) , financial markets, for the most part, went back into the cautious or holding-type pattern that they have been in for weeks now.
Holding for what?
Even with several large names reporting this week, and earnings season running well ahead of expectations (fears), one can't say that these markets are waiting (more than on an individual basis) for more quarterly corporate results. If that were the case, we would have either seen a breakout, or a broad rejection on higher trading volume by now.
Instead, as we all saw on Monday, trading volume dissipated with the major equity indexes at or close to three-month highs. The recent banking news, while positive in terms of relief, is most likely a negative going forward in terms of future credit creation. That leaves the FOMC policy decision this Wednesday afternoon and the April employment report on Friday as primary catalysts for a market that appears to be asking for help in determining direction.
Even as equities stalled nearly in place on Monday, Treasury securities sold off in orderly fashion as the U.S. Dollar Index continued to take back some lost ground ahead of the Fed's two-day meeting. Fed Funds futures trading in Chicago, now show a 97% probability for a 25 basis point rate hike this Wednesday, but still show a likelihood that the 5%-5.25% target range that this hike would create as the committee's terminal rate and the rate cutting to begin as soon as November 1.
Stocks
Equity traders appear to be less than sure of the Fed's next step or, if not that, at least how the messaging proceeds both in the central bank's official statement as well as in the post-statement press conference. On Monday, losers beat winners at the NYSE by less than a 3-to-2 margin and by less than 5 to 4 at the Nasdaq.
Advancing volume took a 44.7% share of composite NYSE-listed trade and a 47.6% share of that same metric for Nasdaq-listed securities. Aggregate trading volume ebbed on a day-over-day basis from Friday for names listed at both exchanges, significantly so for NYSE stocks where trading dropped a stunning 18.7%.
At the headline level, equities showed little movement. The S&P 500 gave up less than two points (-0.04%), while the Nasdaq Composite surrendered nearly 14 points (-0.11%) for the session. The smaller-cap indexes moved for the session even less. However, there was money moving in and out of more specialized indexes as the Dow Transports gained 1.01%, the Philadelphia Semiconductor Index gained 0.81% and the KBW Bank Index took the FRC news on the chin, losing 1.78%.
While there was no single sector that performed all that well on Monday, with Industrials ( XLI) leading the session at +0.54%, there were a couple of notable underperformers. Six of the 11 S&P sector SPDR ETFs shaded red for the session, with Energy ( XLE) down 1.13% and Discretionaries ( XLY) and the REITs ( XLRE) both at least 0.9% lower.
The Macro
On Monday morning, the Institute for Supply Management released its April Manufacturing Index (PMI), and the results were awful. Again. The headline print hit the tape at 47.1, up from 46.3 in March, but still well into contractionary territory. This index has now printed in headline contraction for six consecutive months.
"New Orders," which is always the single most important component in any manufacturing sector survey, printed at 45.7, also in a deep state of contraction. New orders have now been in contraction for eight consecutive months.
The kicker is this. While business activity and velocity continued to ebb across large swaths of the economy, within this survey, two components moved back into expansion after having already been in contraction. "Prices" hit the tape at 53.2, while "Employment" crossed the finish line at 50.2. Both of these lines have to be seen as inflationary (obviously) despite a lack of growth anywhere else in the report. Production, Deliveries, Inventories, Backlogs, Exports, and Imports all showed further contraction in April.
Not prices. Not employment. Two days ahead of the Fed. The ISM will publish their service sector survey for April on Wednesday morning.
Also Ahead of the Fed
Eleven corporations pushed ahead with bond offerings on Monday, in the wake of the First Republic failure and ahead of an expected rate hike on Wednesday. The deals were highlighted by a five-part, $8.5B capital ( CMCSA) at Meta Platforms ( META) and a four-part $5B capital raise by Comcast CMCSA.
In all, $22B worth of corporate debt was priced on Monday. Among high-grade issuers/borrowers, Hershey ( HSY) also tapped the marketplace (for $750M).
Trying Something New?
The FDIC (Federal Deposit Insurance Corporation) has had to put in some serious overtime this year, and on Monday, released a comprehensive overview of the entire deposit insurance system. Within the release, the FDIC came up with some options meant to address financial stability concerns that stem from this year's string of large bank failures. For those with their heads in the sand, the second, third and fourth largest bank failures in U.S. history have all now happened since March.
Straight from that press release, the options moving forward are...
1) Limited Coverage: Keep things as they are, providing deposit insurance up to a specified limit per account (currently $250K).
2) Unlimited Coverage: This would extend coverage to all deposits of all sizes.
3) Targeted Coverage: Different coverage limits across different account types. Under such coverage, business payment accounts could exist with much higher limits than other account types.
Legislators representing both major parties have been discussing a potential increase from the current $250K deposit insurance limit. U.S. Treasury Secretary Yellen appears to back this idea.
While doing so for personal or joint savings accounts, option number three, in my humble opinion, needs some serious consideration. Large businesses should not be forced to place net cash positions into risky asset types as an artificial means of keeping deposits close to insured levels, if there is a need to maintain for any reason, a large cash balance from which payrolls or other expenses are drawn from.
On That Note...
Readers may have noticed that four-star rated (by TipRanks) banking analyst Dick Bove of Odeon Capital upgraded JPMorgan Chase ( JPM) to "buy" from "hold" on Monday, while setting a price target of $153.60.
In his comments, Bove noted "given its size, wealth, and management skills, JPMorgan was the best choice to eliminate the problem called First Republic. The bank made this acquisition on a basis that appears to offer very rich rewards over an extended period of time."
Over the Falls in a Barrel?
Secretary Yellen penned a note to House Speaker Kevin McCarthy on Monday. Yellen wrote: "Our best estimate is that we will be unable to continue to satisfy all of the government's obligations by early June, and potentially as early as June 1."
Multiply This Across The Economy
Bloomberg News reported Monday that IBM ( IBM) CEO Arvind Krishna said that the company expects to pause hiring for roles that it thinks could be replaced in the short-to medium-term with artificial intelligence. IBM currently employs roughly 260K individuals, and non-customer facing, back-office positions are thought to number about 26K.
Krishna said: "I could easily see 30% of that (type of role) getting replaced by AI and automation over a five year-period." That's 7,800 jobs for those doing the math. IBM will not be alone on this.
Economics (All Times Eastern)
08:55 - Redbook (Weekly): Last 1.8% y/y.
10:00 - Factory Orders (Mar): Expecting 1.3% m/m, Last -0.7% m/m.
10:00 - JOLTs Job Openings (Mar): Last 9.931M.
10:00 - JOLTs Job Quits (Mar): Last 4.0M.
16:30 - API Oil Inventories (Weekly): Last -6.083M.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: ( BP) (0.24), ( CMI) (4.69), ( DD) (0.80), ( PFE) (0.99), ( SYY) (0.92), ( UBER) (0.15)
