WEEKLY | FED: Managing Expectations

Your weekly summary with the most important news for your investments.
Alvaro Pereyra - CEO of Northbound
Weekly

Your weekly summary with the most important news for your investments, in this edition:

  • Jerome Powell's comments on the monetary policy rate.

  • Geopolitical outlook. 

  • Reports from the corporate front.

The previous week was bifurcated by two intertwined currents that generated a more pronounced degree of volatility as we close the first quarter of the year. The week began with downward pressure as Federal Reserve (Fed) Chairman Jerome Powell's first speech on Wednesday was extremely measured in his comments regarding the evolution of the monetary policy rate (TPM). In his second intervention, on Thursday, Powell indicated that the lowering of the TPM, currently at 5.5%, could come soon, generating a rally that left the S&P 500 stock index at its historical maximum of 5,157.36 points. In turn, with the message outlined by the monetary policymaker, the 10-year rate quickly dropped to 4.08% (-11 basis points). However, on Friday we saw a degree of volatility emanating from the technology sector as some more sophisticated hedge funds opted to take profits out of the technology sector, where we saw a sharp move in the price of Nvidia intraday, with a -10% move, confirming that behind the rapid rise in the artificial intelligence sector there is volatility for the remainder of the quarter.

This week, the FED will be in a period of silence before the monetary policy meeting to be held on March 19 and 20, where, for now, no fundamental change in the monetary policy rate (TPM) is expected, as it is estimated that the inflation data from the previous month will be unchanged. For now, the headline figure is expected to close at 3.1% (unchanged) and the core figure, which excludes food and energy prices, is expected to close at 3.8% (from 3.9%). On the corporate front, a couple of relevant companies such as Adobe, Dick's Sporting Goods, Dollar Tree, Dollar General, Khol's, Oracle, Williams Sonoma will be reporting and will give us a snapshot of domestic demand where retail sales are expected to have expanded 0.8% year-over-year (from 0.6%). However, the decision of a House of Representatives committee with 50 votes in favor and zero against last Friday to force ByteDance to sell its TikTok platform to a third party (US or European) or else remove it from the US app market will take the stage this Wednesday where the entire House of Representatives will proceed to vote. If passed in the lower house, this legislation will move to the Senate in the coming weeks further straining the relationship with China. The argument is that Xi Jinping's government can, at any time, request data from the platform's nearly 200 million U.S. users, which will be in violation of privacy rules. This in a political environment where the November presidential nominations are in place with former President Trump representing the Republican party and President Biden representing the Democratic party.  

On the macroeconomic front it was Powell who dominated the headlines last Thursday making the following comments in front of Congress about the evolution of the TPM:

"Now [rates] are well into restrictive territory" following up with that the TPM is: "well above neutral. We are far from neutral now." 

This is why he returned to the argument about a higher degree of confidence that the inflation rate was still falling towards 2% noting that:

 "When we have that confidence, and we are not far from it, it will be appropriate to reduce the intensity." 

This gave the stock market some respite. This in a scenario where there was a rebound in the unemployment rate to 3.9% (from 3.7%) with monthly employment generation coming in at 275 thousand, well above market expectations. However, the stumbling foot still remains wage inflation which continues to hover around 4.3% (from 4.4%) with high downward resistance. So the Fed will wait for a couple of readings on the evolution of wage inflation before adopting pro-cyclical measures in an environment where the real rate is already at +2.5%, (nominal rate of 5.5% minus PCE inflation of 3% average) with this in line with what Powell has been signaling with that they are well above the neutral rate. For now there is strong conviction that the FED will lower the TPM in the mid-June meeting according to the CME Fed Watch Tool reading.

On the political front, the Chinese government's annual plenary meeting will close today after having set an expansion rate of 5% for the current year, inflation hovering around 3% and the unemployment rate at 5.5%. The Chinese government also stated that this year will be transformative for the country's future growth capacity. Meanwhile, in Russia, President Vladimir Putin is expected to be re-elected for the fifth time as president in elections that will be held for several days during the rest of the week. In the midst of a tense environment that continues to escalate with NATO countries after Sweden formally joined NATO last week and President Biden, in his annual State of the Union address, strongly emphasized that Ukraine will be victorious in the war against Russia, without any diplomacy so far.

In conclusion, it is evident that the FED has been managing expectations about the evolution of interest rates arguing that there is now room to start a downward cycle, however, there is a countercurrent where the artificial intelligence sector could be vulnerable to a profit-taking, as already happened last Friday.  

THIS WEEK 

Monday (March 11)

Quarterly Reports

  • Hesai Group

  • Oracle Corporation

  • Caseys General Stores, Inc.

  • Vail Resorts, Inc.

  • Asana, Inc.

Economic Reports

  • Inflation Forecasts Report

Tuesday (March 12)

Quarterly Reports

  • Archer-Daniels-Midland Company

  • CryoPort, Inc.

  • International Game Technology

  • Qifu Technology, Inc

  • On Holding AG

Economic Reports

  • Monthly Change in Inflation Report

  • Annual Change in Inflation Report

  • Monthly Change in Core Inflation Report

  • Report of annual change in core inflation

Wednesday (March 13)

Quarterly Reports

  • Lennar Corporation

  • Dollar Tree, Inc.

  • Cerevel Therapeutics Holdings, Inc.

  • Williams-Sonoma, Inc.

  • ImmunityBio, Inc.

Thursday (March 14)

Quarterly Reports

  • Adobe Inc.

  • Dollar General Corporation

  • Ulta Beauty, Inc.

  • Futu Holdings Limited

  • Wheaton Precious Metals Corp.

  • KE Holdings Inc

Economic Reports

  • Producer Price Index Report

  • Retail Sector Monthly Sales Change Report

  • Monthly Inventory Change Report

Friday (March 08)

Quarterly Reports

  • Jabil Inc.

  • Embraer S.A.

  • GigaCloud Technology Inc

  • RLX Technology Inc.

  • Soho House & Co Inc.

Economic Reports

  • Monthly Export Price Change Report

  • Imports monthly price change report

  • Annual Export Price Change Report

  • Annual Import Price Change Report

  • NY Empire State Manufacturing Index Report

Now you have more information about your investments. See you next week with more news.

For illustrative purposes only. Does not represent an investment recommendation. For more information, please see our Social Media Disclosure.

“Vest” is one of the trademarks under which Northbound Securities LLC, VestPay Inc., and VestWealth Inc. do business (collectively, the Vest Companies). The Vest Companies are wholly owned subsidiaries of Vest Inc. Trademarks and logos are the property of their respective owners and do not represent endorsements of any kind. Unless otherwise noted, the Vest Companies are not partners, affiliates, or licensees of these companies.

Important information to self-directed investors.

-Securities products and services are offered to self-directed investors through Northbound Securities LLC (Vest), a member of FINRA and SIPC. SIPC protects the securities of the customers of its members up to $500,000 (including $250,000 for cash claims). Explanatory brochure available upon request or at www.sipc.org.

-Online investments have inherent risk due to system response, execution price, speed, liquidity, market data and access times (which may vary due to market conditions), system performance, market volatility, order size and type, and other factors. An investor should understand these and additional risks before investing.

-The content, news, research, tools, market data, and stock symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in a particular investment strategy.

-The information provided should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation. Projections or other information regarding the likelihood of various investment results are hypothetical in nature, are not guaranteed as to accuracy or completeness, do not reflect actual investment results, and are not guarantees of future results.

-All investments involve risk, losses may exceed the principal amount invested, and past performance of a security, industry, sector, market, or financial product does not guarantee future results or returns. Remember that diversification is not a risk-free investment strategy, and, in certain circumstances, it may not fit your investment objectives.

-Certain services (Brokerage Services) offered through our mobile app are offered only in jurisdictions where it is lawful to do so. The availability of the Brokerage Services through the Internet is not a solicitation or offer of the Brokerage Services to any person in any jurisdiction where such solicitation or offer is unlawful. We reserve the right to limit the availability of the Brokerage Services to any person, geographic area, or jurisdiction at any time at our sole discretion. We make no representation that the Brokerage Services are appropriate or available for use in locations outside the United States or that access to our mobile application is legally permitted in countries or territories where the Brokerage Services may be illegal. If you access the Brokerage Services from other locations, you do so at your own risk and are responsible for compliance with local laws.

-Before investing in any exchange-traded fund (ETF), you should consider its investment objective, risks, charges, and expenses. Contact us at [email protected] to obtain a prospectus containing this information. ETFs are subject to market fluctuations and the risks of their underlying investments. ETFs are subject to management fees and other expenses. ETF shares are bought and sold at a market price, which may be above or below their liquidation value, and are not individually redeemed from the fund. Investment returns will fluctuate and are subject to market volatility, so an investor's shares, when redeemed or sold, may be worth more or less than their original cost. ETFs are subject to similar risks as stocks. Some specialized ETFs may be subject to additional market risks.

-Securities products are not insured by the Federal Deposit Insurance Corporation (FDIC). They are not guaranteed by a bank. They may lose value.

-FINRA's BrokerCheck report for Vest is available at https://brokercheck.finra.org/firm/summary/314549.

Important information regarding the investment advisory service.

-Investment advisory services (Advisory Services) are provided by VestWealth Inc. (VestWealth), an investment adviser registered with the Securities and Exchange Commission (SEC). SEC registration does not imply a certain level of skill or training.

-VestWealth is not a tax advisor, nor should any information herein be considered tax advice. Please consult a qualified tax professional.

-VestWealth's internet-based Advisory Services are designed to assist customers in achieving discrete financial goals. They are not intended to provide comprehensive tax advice or financial planning with respect to every aspect of a customer's financial situation. They do not incorporate specific investments that customers hold elsewhere.

-Refer to VestWealth's Advisory Services brochure for more information. Certain investments are not suitable for all investors. Before investing, consider your investment objectives and VestWealth's fees and other fees that may be charged. The rate of return on investments can vary widely over time, especially for long-term investments. Investment losses are possible, including the potential loss of all amounts invested.

Important information regarding the money transmission service.

-Customer funds transfers in US Dollars are processed by VestPay Inc. (VestPay), a United States money services business registered with the Financial Crimes Enforcement Network (FinCEN).

Important information to Brazilian residents.

-None of the Vest Companies are authorized by the Brazilian Securities Commission (CVM) to offer the securities distribution service to investors residing, domiciled, or incorporated in the Federative Republic of Brazil (Brazilian Investors).

-The securities distribution service to Brazilian Investors is offered by FRAM Capital D.T.V.M. S.A., a corporation organized and existent under the laws of Brazil, duly authorized to operate as a securities broker dealer by the Brazilian Central Bank. This under the terms of Guidance Opinion 33 issued by the Brazilian Securities Commission.

-The registration and treatment of the clients’ information is conducted in accordance with the current legislation on personal data protection in place in Brazil and the determinations of the corresponding regulatory bodies on the matter, including Law No. 13,709.

V.02 11/17/2023