The action in the stock market resembles nothing so much as a game of "chicken" three days down, one day up, one day barely moving; to say nothing of Putin vs the West or The Fed. Who will blink first in any of these situations is anyone's guess.
Yesterday the S&P closed at 4,775, up 4 points, the Dow closed at 34,934, down 55 points and the Nasdaq Composite closed at 14,124, down 16 points. Wednesday's most actives were mostly in the red including communications and media giant ViacomCBS (VIAC) which was down nearly 18%.
Chart: The New York Times
With many in the West, casting doubt on Russia's claim to be reducing troop levels on the Ukraine border, (even noting that they have increased by 7,000) stock futures as might be expected, are trading in the red in early morning action. S&P 500 futures are trading down 22 points, Dow Jones Industrial Average futures are trading down 144 points and Nasdaq 100 futures are trading down 93 points.
TalkMarkets contributor Declan Fallon cautiously writes that Markets Enjoy Some Stability at the close of Wednesday's trading session.
"We haven't yet a higher low from Monday's action, but today's trading sided more with demand than profit-taking. There are small victories to note, even if today's action remains inside the trading range for February...The S&P managed to stabilize itself relative to yesterday's trading, but it is losing the relative battle against the Nasdaq and Russell 2000."
"It's still early days for market declines but these loses needed to be viewed in context. For example, the hardest hit Russell 2000 (IWM) has taken a loss over 20% from its highs but is currently 23% above breakout support from 2020 and 118% above the COVID lows of that year. Context is everything and timing is a mug's game for the majority. There is no need to time the market as an investor - just buy when you have the funds to do so."
As yesterday, saw the release of the January FOMC meeting notes many commentators sought to weigh in on the Fed and the coming rate hikes. Contributor Jesse Felder asks (invoking former Fed Chair Ben Bernanke), Is It ‘Monetization’ Yet, Dr. Bernanke?
"Eleven years ago, shortly after the onset of QE 2, Ben Bernanke gave us his definition for “monetization” of the debt (in the chart below), telling Congress (hat tip, Grant’s):
At the time, The Fed’s balance sheet was approaching $2.5 trillion. Today, it stands at nearly $9 trillion, more than triple the figure from a decade ago."
"And so it only seems fair to ask, ‘Is it monetization yet, Dr. Ben?’"
Contributor Mish Shedlock writing in How Much Will The Fed Hike? 40 Years Of History Shows The Brick Walls takes a look back and finds Fed hikes are usually fewer than what they say.
"I picked this idea up from Steve Matthews, Bloomberg Business Reporter.
"There is a 50-year history that the Fed never hikes rates once the fed funds rate has risen above the five-year yield. That point could come before the end of 2022, and suggests that it will be very difficult to continue."
Read that carefully. Matthews did not say the Fed Fund Rate didn't top the yield on the 5-year note, only that once it did, the Fed stopped hiking."
Shedlock includes several graphs to chart past Fed rate hike actions before reaching the following conclusion:
And contributor Brian Romanchuk has this to say about Incoming Fed Rate Hikes:
"I think the idea of a “surprise” inter-meeting rate hike is silly in the context of modern Federal Reserve operating procedures, but I now see more chance of an initial 50 basis point rate hike in March as an attempt to assert dominance...Unless inflation cools a lot, the base case has to be that we are looking at 25 basis points per meeting (plus the wild card of a starting 50) for forecast horizons going out a year."
In addition Romanchuk offers these further observations:
- "What matters most for the rate hike cycle is the terminal rate pricing. Fed members can raise their estimates for long-term policy rates in the “dot plot” in an attempt to influence market pricing, but there is no particular reason for anyone to have much confidence in the Fed’s ability to forecast where they will decide to put rates years in the future. Unless they specifically target term yields, the Fed just reacts to historical data and sets the policy rate.
- They can muck around with Treasury buying/selling (“Quantitative Tightening”). There is considerable uncertainty about the exact effects of Federal Reserve balance sheet expansion, so I expect caution in reversing it. I am skeptical about its effects, explained in more depth below. However, it is impressive that the army of Ph.D.’s at the Fed managed to develop a policy tool that is effectively slower to react to the cycle than fiscal policy.
- The flattening of the curve (chart above) is coinciding with the inevitable “bond market is predicting recession!” stories. My view is that we have a market segmentation issue: bears are throwing all their risk at the front, bulls are buying long tenors, and relative value players are not going to jump in front of a steamroller to pick up nickels. Forwards are converging to the discounted terminal rate, and that terminate rate will move up and down as data hit."
Amid all the FUD (Fear, Uncertainty and Doubt) swirling about, Q4 earnings continue to roll in.
Contributor Shanthi Rexaline reports Nvidia Q4 Earnings Beat Estimates On Strong Data Center, Gaming Demand.
"Santa Clara, California-based Nvidia (NVDA) reported fourth-quarter revenue of $7.64 billion, up 53% year-over-year. This exceeded the year-ago revenues of $5 billion and the consensus estimate of $7.42 billion. The non-GAAP earnings per share came in at $1.32 compared to the year-ago's 77 cents and the previous quarter's $1.17. Analysts, on average, estimated EPS of $1.22...non-GAAP gross margin came in at 67%, flat with the preceding quarter but 150 basis points higher than a year ago...Cash, cash equivalents and marketable securities were $21.21 billion, up from $11.56 billion a year ago and up from $19.3 billion a quarter ago."
"The company guided to first-quarter revenue of $8.1 billion, while the consensus calls for $7.29 billion in revenues...After ending 2021 with a gain of over 125%, Nvidia shares came under pressure in 2022 amid the tech sell-off. Year-to-date, the stock has pulled back about 12%. In after-hours trading, the stock was seen trading down 0.72% to $263.20. It ended the regular session on Wednesday at $265.11."
Tech giant Cisco also reported earnings yesterday and the TalkMarkets contributors at Zacks Research Staff report that Cisco Systems Beats Q2 Earnings And Revenue Estimates.
"Cisco Systems (CSCO) came out with quarterly earnings of $0.84 per share, beating the Zacks Consensus Estimate of $0.81 per share. This compares to earnings of $0.79 per share a year ago. These figures are adjusted for non-recurring items. This quarterly report represents an earnings surprise of 3.70%. A quarter ago, it was expected that this seller of routers, switches, software, and services would post earnings of $0.81 per share when it actually produced earnings of $0.82, delivering a surprise of 1.23%. Over the last four quarters, the company has surpassed consensus EPS estimates four times.
Cisco shares have lost about 14.4% since the beginning of the year versus the S&P 500's decline of -6.2%...It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is $0.87 on $13.27 billion in revenues for the coming quarter and $3.42 on $52.66 billion in revenues for the current fiscal year."
Caveat Emptor.
With regards to the Ukraine, I will leave you with this quote from former U.S. Secretary of State Henry Kissinger:
"The attitude of the West and of Russia towards a crisis like Ukraine is diametrically different. The West is trying to establish the legality of any established border. For Russia, Ukraine is part of the Russian patrimony."
Peace be with you, I'll be back on Tuesday.
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