Market Briefing For Tuesday, March 22

'Surfing turbulent waves' describes much of Monday's action. Surprisingly a bit firm 'after' the Quadruple Expiration that was generally tilted higher, S&P backed-off and rebounded, then sold-off more sharply, only to rebound again.

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What's up? First you almost always retreat from an up opening absent news, so that's not odd. Second you had the Kremlin 'call-in' the U.S. Ambassador to Russia and threaten a 'rupture in relations' if the United States persists with comments that are derogatory to their President Putin (again perpetrators will hate those telling the truth, just as they blame the victims of their aggression).

However it was really the Fed Chairman, preparing more of a 'beachhead' for the Fed's invasion with multiple landings of higher rates threatened to respond to an inflationary attack, that really got the market jittery for an hour or so.

The market continues to 'fight the Fed', and in a sense while outlining how the Fed was (and is) 'behind the curve' for about a year now, we have tended just a bit of resistance in a different way: believing the market already crashed the majority of smaller (mostly Nasdaq) stocks over the course of many months, and set-up particular lower-risk (with patience) sprinkling for speculation. We'd agree with views about a majority of mega-cap stocks remaining very pricey.

Was it wise for Biden to call Putin a war criminal. It was certainly accurate. For sure the Russian leader will be judged thusly by international institutions as I'd noted The Hague had sent a team to Ukraine to investigate (before the news generally reported, as I have a friend in Banking there who happened to not it as we had talked about how he now drives an armored BMW getting 4 mpg.)

Putin's place in history is hugely diminished, he won't be 'Vladimir the Great'. I think we all knew he wanted to reassemble the old USSR and just naming the so-called new nations of Donbas as 'Peoples Republics', hearkens not only to puppet states, but communist ones at that! Look at the way he conducted war, deliberately targeting civilians. He did this in Chechnya and Syria, so avoided in discussion not, he was a 'killer' then. However calling a 'spade a shovel', in a sense personalizes the war, or possibly helps Putin portray this as a clash between Russia and America. It's moving in that direction, and markets know it to a degree (especially Oil), while the Fed seems oblivious 'as if' they can stop inflation partially increased from the incendiary effects of the actual war.

The impact of all this on Western economies including the USA, are varied as well as speculatively risky. So is the tightrope China is waling, or predicament the Fed finds itself in, where they sound more likely to make a mistake trying to 'force' inflation lower, beyond a portion which can be domestically lowered.

Most worries relate to energy markets, beyond semiconductor supply-chain or broader concerns over inflation (lower energy would reduce commodity prices in most areas). For many Americans a squeeze is here even if mostly moans about retail gasoline prices. More is on the way, higher taxes, rising prices for many goods and especially more costly fuel and energy bills until resolved. In Florida (for instance) some local governments are trying to increase sales tax levels by 'a penny' as they put it, and there's lots of opposition. Tourist taxes it seems are high enough (if not too high) and there should be plenty of income to avoiding general sales tax increases, and no, cutting gasoline tax politically seems appealing, but it's not that simple (would help commercial truckers a lot though if they use diesel). All this will increase demand for EV's even years in front of us, because again consumers were given a taste of what things cost.

In-sum:

One might not correlate Putin's criminal designation to inflation, but it relates if it pushes us towards a longer period of stress and tension. Russia of course really doesn't have much to export other than Oil (and cyber-threats).

I think therefore that Putin is destroying their key market by this war, by failing to recognize he can't shove everyone around this time, and he'll likely find that even China (already buying some Oil from Russia) doesn't want to estrange its largest trading partners (EU and USA) entirely. This is lose-lose for Putin, almost regardless (tough to say) how the territorial dispute with Ukraine goes.

This week is sort of critical, the need for a 'truly-united' stance by all the Allies in Brussels, actually means more than the Fed comments or upward forecasts by a couple of Wall Street strategists who 'today' figured-out prices might rally further. One said another 20% straight from here for the S&P. Highly unlikely I say, even if things manage to hold together. Somewhat higher especially in a few smaller stocks that were overly pummeled, that's more likely if uncertain.

U.S. recovery of GDP and other measures of expansion moved the needles a bit too much, compelling the Fed to try the 'Paul Vockler' 1970's approach. Oil is the real concern, as prices are on the rise again, and remain problematic. I heard Goldman and others talk about how $135/bbl Oil would be tolerated by markets, and I disagree that the S&P would hold-up for long at that level.

Earnings expectations have not retreated enough to reflect the uncertainties I and others have outlined, but that's for mega-cap stocks. The rationalizations I hear do not pertain to the 'average' stock already submerged for months. So stocks weathered higher Oil for the most part, but I'm not very enthusiastic.

Fed Chair Powell's comments today were basically encouraging 'demand destruction'. He should be a bit careful what he wishes, because aside Oil and rates doing that it might be important that this 'consumer-centric' economy not fall apart. Sure I realize it's a bit of monetary policy politics, but coming from a Fed 'at least' we think a year late (so way behind the curve), I don't like their 'instant sobriety'.

Tuesday will likely see early chop again leading to intraweek upside efforts, so you might have more pundits dismissive of Chairman Powell's forewarning his team hasn't changed their approach. Go forward but 'brace' might be the term for the moment, with an eye on the exits again, depending on news variables.

Maybe the Street really does know the Fed's 'bark' will vary with events, not merely a doctrinaire rigid policy move as the Chair's comments seemed to revert to.