Wednesday night was supposed to be the night. Tesla's ( TSLA) big night, or "investor day" or whatever you want to call the company's four-hour presentation, got off to a late start, and appears (at least at this point) to have fallen flat with the investor/trader community.
Oh, CEO Elon Musk was there. He confirmed plans to build a new plant in Monterrey, Mexico. Musk spoke of a vision for $10T in spending that will be required to transform the planet into something more sustainable in terms of energy usage.
The event really just appears to have turned out to be an opportunity for overnight traders to take profits/sell the news, as higher-profile corporate news was made by Salesforce ( CRM) , as that company released earnings, and by U.S. Treasuries as the 10-Year Note yielded as much a 4% and then yielded some more as the night wore on.
ISM Prices
Perhaps the real news on Wednesday was made by the ISM's February Manufacturing survey. The report hit the tape at 47.7, a fourth consecutive month in rather deep contraction. There were some changes within the report though, changes that could be more troubling than a simple slowdown or even a recession on the manufacturing side of the economy, which I think is general knowledge by now.
New Orders continued to slow down, printing at 47, which means the slowdown for New Orders is itself decelerating as that was up from January's anemic 42 print. Remember, 50 is the border between expansion and contraction, so even a 49.9 print means that conditions weakened from the prior month regardless of how low that month prior's number was.
Run down the list... nearly every component showed continued weakness in February.... Production, Employment, Deliveries, Backlog, until one gets to Prices. Prices? Yes, Prices printed at an expansionary 51.3 for February, up from a deeply contractionary 44.5 in January. Even without an increase in New Orders. In the manufacturing survey.
The ISM service sector survey is due Friday. Uh oh.
Rates
This got "them" talking. Them being our friends over at the Fed.
Minneapolis Fed President Neel Kashkari, speaking from Sioux Falls, South Dakota, said, "To me, much more important than whether its 25 or 50 (basis point increase on March 22) is what we signal in what's called the dot plot." He's not wrong. Suddenly, with inflation showing persistence, these quarterly economic projections that the FOMC puts together on a quarterly basis and are sometimes almost comically inaccurate, will be scoured for intent in less than three weeks with more interest than if they were the Dead Sea scrolls themselves.
Kashkari went on: "We're not seeing much of a sign of our interest-rate increases slowing down the services sector of the economy and that is concerning to me. Wage growth is at a level that is actually too high to be consistent (with the Fed's inflation target)."
Elsewhere, Atlanta Fed President Raphael Bostic wrote that he expects to see the Fed Funds Rate "reach between 5% and 5.25%" and then remain there "well into 2024" in order to bring inflation under better control. Bostic then added: "This will allow tighter policy to filter through the economy and ultimately bring aggregate supply and aggregate demand into better balance."
Of course, Treasury securities sold off. The U.S. 10-Year gave up 9 basis points, going out on Wednesday, paying 4%. I see that yield up around 4.035% at zero-dark thirty as I work my way through this piece. The Six-Month T-Bill now pays more than 5.15%. Think about that. There is less and less of a good reason to take on risky assets at this point than there has been in decades. Speculation? Sure. But cash is not just cash anymore. Cash can get one paid without any risk to principal.
Equity bulls talk about the cash on the sidelines. Problem with that is that it's not on the sidelines. It's being tied up for three and six months at a time as long as someone is actually paying attention.
Probabilities/Markets
Fed Funds futures markets trading in Chicago are pricing in a higher terminal rate than just a couple of days ago. These new probabilities mock Raphael Bostic and his 5% to 5.25% call. These markets are now pricing in a 31% likelihood for a 50 basis rate hike on March 22, which would take the Fed Funds Rate to Bostic's range right then and there. Futures are now placing 53% probability on a terminal rate of 5.5% to 5.75% by July 26, which holds through November 1 when there is currently a 51% chance for a 25 bps rate cut that would see the Fed Funds Rate exit 2023 at 5.25% to 5.5%.
Obviously, there is less and less reason to buy dividend stocks as the days pass. There is and can be no appetite for income-type stocks that do not bear any real prospects for growth.
Eight of the 11 S&P sector-select SPDR ETFs closed out Wednesday in the red, with the Utilities ( XLU) leading the way lower once again. The XLU ETF was down 1.65% on Wednesday, and was down 5.92% in February. The Dow Jones Utility Average is down 7.93% year to date. The Dow Industrials and Dow Utilities are the only "major" equity indexes currently lower now than where they closed out 2022.
Losers beat winners on Wednesday by roughly 4 to 3 at both the NYSE and the Nasdaq market site. Advancing volume took a 43.4% share of composite NYSE-listed trade and a 37.1% share of that same metric for Nasdaq-listed names. Trading volume fell significantly overall on the first day of the month, as would be expected.
Trading Salesforce
For those who have been with me on this one, rarely does anything work so accordingly to plan as this one now is with Salesforce ( CRM) . On February 10, I wrote to you pointing out that now with all of these activist investors involved in the name that I needed to increase exposure, hopefully down to the $160/$161 area. CRM was trading with a $173 handle, and I could see a $179 pivot forming with a price target around $205.
Well, we got that dip (and more), bought more shares .... and now, we'll get the move past the pivot that we had looked for.
I would not blame anyone in this trade with us for taking some profits this morning. I am quite tempted to do so myself. The fact is that I see nothing other than the unfilled gap that will be created by Thursday morning's opening bell that would dissuade me from believing that my original target is still accurate. I am still long this name and intend to remain so.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Expecting 195K, Last 192K.
08:30 - Continuing Claims (Weekly): Last 1.654M.
08:30 - Non-Farm Productivity (Q4-rev): Expecting 2.6% q/q, Flashed 3.0% q/q.
08:30 - Unit Labor Costs (Q4-rev): Expecting 1.6% q/q, Flashed 1.1% q/q.
10:30 - Natural Gas Inventories (Weekly): Last -71B cf.
The Fed (All Times Eastern)
16:00 - Speaker: Reserve Board Gov. Christopher Waller.
18:00 - Speaker: Minneapolis Fed Pres. Neel Kashkari.
