[Market Outlook] An Abundance of Data This Past Week

What Is The Takeaway? Where Are We Headed? [Company Logo] An Abundance of Data This Past Week What Is The Takeaway? Where Are We Headed? By Donn Goodman and Keith Schneider [image] Welcome to our Market Outlook Gaugers. Hope you all have had a productive, profitable and enjoyable week. Last week, our Outlook was all about the data and trying to eliminate some of the noise. If you missed it, you can [read it here](=). This week we received the latest input from the Federal Reserve (another raise), jobs (exceeding expectations), regional banks (3 more banks in trouble?) and earnings (plenty of earnings beats on lowered expectations). Just SO MUCH DATA: [image] What matters most? What will be the ultimate impact on the economy? As I was reviewing this past week's voluminous amount of relevant information, I thought to myself, "There are just so many economic variables at work right now." More importantly, how does one appropriately review all of this information to help make better investment decisions? Then I remembered…."ah, that is why we have quant-based, algorithmically designed investment strategies."So we can let the strategies do what they each do best: exploit different investment edges. (if you would like more information on our investment strategies, ALL WEATHER BLENDS or help managing your assets through MarketGauge Asset management (MGAM), please contact Rob Quinn ([Rob@MarketGauge.com]()) or myself, [Donn@MGAMllc.com]( and we would be happy to introduce you to our suite of investment solutions for do it yourself or through our RIA. It is difficult enough to appropriately interpret the constant stream of economic data points, earnings information, Fed actions, geopolitical maneuverings, and threats and policy decisions affecting our economy and eventually affecting the stock and bond markets. So much data. I thought I would take a stab at interpreting some of it. Read on. The Fed's Continued Hawkish Action By now, you are well aware that the Fed raised interest rates by another 25 basis points. As we said last week, "this was already baked in the cake" with more than 80% futures predicting that it would take place. (there was a small group of analysts hoping for a pause due to the banking problem which persist). We are now at 5% after 10 interest rate hikes in just a little more than a year. A disheveled Jerome Powell took the podium right after announcing the increase. It was what he DID NOT SAY, that startled the markets and caused a downward spike in the stock market for the next two days. The market recovered on Friday, but more about that in a minute. [image] During his press conference, Chairman Powell made a good case (yet again) for why they should have done nothing. However, he alluded to "elevated inflation" and the need to cool off the economy. He reiterated that "policy is tight" and that "real rates are around 2%, meaningfully higher than the neutral rate". Chairman Powell also said this week (on the podium) that avoiding a recession is "more likely than that of having a recession." He also opened the door to pausing interest rate hikes following these 10 straight increases by stating "we may not be far off" the level that is sufficiently restrictive to squash persistent inflation, he said. What didn't he say? Chairman Powell did not use the word "PAUSE" which everyone was looking for. The Fed now plans to "closely monitor incoming information and assess the implications for monetary policy." But he reiterated that the Fed remains data dependent. Which simply means that they will adjust accordingly based on the data that continues to flow in. He also didn't do anything to suggest rate cuts, or a "pivot," are on his mind, though. Powell said, “the other end of the Fed's dual-mandate – the job market – is still "extremely tight" with 3.5% unemployment, and that the process of getting inflation back down to 2% has a long way to go... [and] is likely to require a period of below-trend growth and some softening of labor-market conditions. Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run." Yet, there are MANY, that believe the Fed will cut interest rates soon. The average period of time from the last hike to a pause to a pivot to a reduction in rates is 108 days. That would put the easing of rates somewhere between August and September. We do not buy it. The bond market is also following this narrative as the wide inversion between 2 and 10s has narrowed significantly in the past few weeks. See chart below: [image] We are experiencing a credit crunch at the moment, according to Corporate CEOs. Rates have become restrictive for Corporate America and are heavily affecting smaller companies. This has shown up in small cap stocks. This should weaken the economy further and put pressure on employment. See chart below: [image] Regional Banking problems. Chairman Powell did allude to the strains that rising interest rates have had on the banking system. However, he repeated the same mantra that Jamie Dimon and President Biden stated just days earlier: "Banking conditions have improved since March…the system is sound and resilient." This was followed by several days of the KRE (Regional Bank Index) falling as 3 additional banks, PacWest Bank (PACW), Western Alliance Bank (WAL) and First Horizon Bank (FHN) were down nearly 50% on Thursday and looked to possibly be taken over by the FDIC or bought by another financial institution. They recovered a bit on Friday after the positive jobs report and a rally in the stock market. However, the regional banking industry remains problematic, and it may take a long time to resolve or cure the sector. You may recall our previous Outlook about regional banking issues. ([read here]()) With prolonged high rates and the appearance of mismanagement of assets and liabilities, the banking problems have further to go. See some relevant charts below: [image] We still believe that the Fed was late in hiking rates. These 10 rate increases came on the back of zero interest rates post pandemic. Hindsight is 20/20 but looking back, the Fed took their decisive action much later than was required. This has led to all types of negative banking issues. Today, rates have begun to roll over believing that we are in for lower rates in the future. See chart below: [image] Bank Lending has slowed dramatically Smaller banks are being scrutinized much more closely now since Silicon Valley Bank went bankrupt. Bank loans have seen a dramatic slowdown with some major markets reporting as much as 25% fewer loans being underwritten. See chart below: [image] Higher short-term interest rates, however, have helped to attract investors seeking a risk-free way to acquire attractive rates of return. These are 2-year fixed income duration instruments. The amount of movement out of banks and into short-term Treasury bills has undoubtedly caused an exacerbated run on the banks and helped to weaken those depending on stable deposits from their customers. See chart below: [image] The Friday Jobs Report. Click the links below to continue reading to discover: - The biggest surprise in the jobs report - Which way rates will likely go from here - How the stock market has held up - What to expect in May - An update on earnings season - And more Plus, get the BigView Summary bullets and video analysis [Click here to continue to the FREE analysis and video.]() [Click here to continue to the PREMIUM analysis and video](). Best wishes for your trading, Donn Goodman CMO, Market Gauge Asset Management Keith Schneider CEO, MarketGauge P.S. When you’re ready, here are 3 free ways we can help you reach your trading goals… - [Book a call with our Chief Strategy Consultant](, Rob Quinn. He can quickly guide you to the resources that you'd like best. - Get the foundational building blocks of many of our strategies from Mish's book, [Plant Your Money Tree: A Guide to Building Your Wealth](), and accompanying bonus training. - [Review quick descriptions]() of our indicators, strategies, services and trading systems here. Get more - follow us here... Twitter [@marketgauge]() and [@marketminute]() and [Facebook](=) To stop receiving this go [here.]() Got Questions?Office hours 9-5 ET (New York time) Email: info@marketgauge.com Live Chat: Go to bottom right corner of our [home page.](=) Call: 888-241-3060 or 973-729-0485 There is substantial risk of loss associated with trading any securities including and not limited to stocks, ETFs, futures, and options. Only risk capital should be used to trade. Trading securities is not suitable for everyone. No representation is being made that the use of this strategy or any system or trading methodology will generate profits. Past performance is not necessarily indicative of future results. To unsubscribe or customize your email settings, [click here](). "Market Intelligence at a Glance + Tools For Serious Traders" [Unsubscribe]( MarketGauge.com 70 Sparta Ave, Suite 203 Sparta, New Jersey 07871 United States (888) 241-3060