Market Briefing For Tuesday, May 2 '23

Balance of Power shifts won't change much whether Congress removes the presumed-crucial 'Debt Ceiling' challenge now or in four weeks from now.

Since nothing will shift drastically, you might as well have the Speaker and POTUS meet now; and sort out an acceptable compromise. If the alternative is 'dire', to the extent Sec'y. Yellen proclaims; then there's no alternative to going fast to make a deal, and not keep the stress pending for a number or weeks still. (After the Close the President did 'command' a meeting, for May 9 I believe.)

I agree that Washington has been derelict for years on the National Debt and Budget considerations; but both sides of the aisle having opportunities more than a couple times to redress the absurdity; and neither accomplished it. So I think there's nothing to be gained by holding this up for another few weeks.

Of course it's true that the Nation can't adjust as well as historically was more or less always the case; but there is something to be said about stopping the relentless tendency to wait for the last minute and then everyone breathes yet another 'sigh of relief', as if politicians were actually going to allow a default.

It's slightly similar with 'Banking'. We had modern versions of an old-fashioned bank run with Silicon Valley Bank; or a slow-poke variation with First Republic Bank, because there 'moneycenter' banks had put in about $30 billion shore-up funding; which actually masked about $100 billion of deposits withdrawn since.

So now everyone rests easier with both implicit Fed backstop protection and JP Morgan picking up the assets. It's not a sustainable model; and again the perception is that there's not yet-another regional bank challenge in the wings to worry about. Let's hope not; although I'm not convinced, given 'commercial property' default risks, which is nothing like 2007-2008's 'Epic Debacle' I had forecast, but it's enough of a cousin that it has almost everyone's attention.

Besides all that... Fed Chairman Powell continues to believe inflation remains a problem (it does); so he thinks they can help fight inflation with another rate hike (they actually can't). Powell basically (so far) isn't letting the prospect of a 'Default' (by the United States) derail fighting inflation, which is ridiculous.

Powell is not wrong that inflation remains a big problem for average people of course; however he's wrong believing the central elements of this is fixable by the Fed tightening longer and firmer to offset their own misdeed two years or more ago; by keeping 'emergency' rates too low for too long (as forewarned).

So the markets remain in a lurch... multiple dynamics where the Fed feels a need to keep leaning on inflation from 'their' perspective, while the economy weakens, and that's 'stagflation'. China is recovering; Oil demand is rising; so even the periodic setbacks in Oil prices haven't offset the rising prices.

(Yes I thought Washington failed to restock the SPR in hopes Oil would go up and promote people buying more EV's, but again that was politics not reality; as with no infrastructure in most of the Nation to support it; well, for most folks it's not really time to consider an EV, unless maybe a hybrid. That will change but imposing it by assisting high Oil prices isn't the way for now; although tells you how Government will try to influence 'that' inflationary item to purposely cause inflated consumer fuel prices; which again has nothing to do with the Federal Reserve's policies. It's almost similar with food; yet another topic.)

Judging by Airlines, cruise ships and MGM reports and expansion one may be tempted to believe there is no recession at all; and in some ways that's so but not when you take populations in the aggregate. Expanding into Okinawa might hint that there is fear about losing Macau (mostly Las Vegas Sands for instance plus Wynn); but that's unlikely as China really doesn't want all those funds going outside of their 'claimed' territories; and they haven't invade their neighboring casinos 'yet'.

Lots of this is money continues trying to get 'out' of China or even Hong Kong (concerned about how long they can evacuate assets); and that moves funds to Las Vegas itself when able. Watch when non-stop flights resume to Vegas.

I would not make presumptions from many of the earnings reports; Boeing's was good, but they have other problems (although military contracts tend to be their fallback); JP Morgan looks good with First Republic assets a plus at the same time as it doesn't speak well to regional banks 'unless' the FDIC is able to extend more coverage for 'business accounts' (or money fund shifting automatically); VISA, McDonalds', our Chevron, all did fine; no surprises and somewhat 'in' the market's price.

Then there's Amgen, which had a so-so guidance; but usually emerges from short-term funks; IBM which did well in the 'cloud' and catch up in AI rapidly if they do a sharp acquisiton for-instance (therefore risky to bet negative on big blue); and Goldman Sachs, which had it's own trading problems plus losses in the effort to establish and expand Apple Card, which is why they're offering 'market level' realistic interest rates on Savings Accounts (to attract customers and it's a good rate compared to competition .. at least at first blush). Others reporting ok; like Dow Chemical and 3M; or Microsoft excellent as noted last week with Azure; but I'm unimpressed with Intel and there's Apple on-tap as far as results.

Bottom line: most foreign markets were closed Monday due to 'May Day' as observed (labor) but not here in the USA. Market shuffle was mostly neutral.

Future earnings power is not as weak as 'bears' contend' but that also might mean the Fed's mistaken view they can temper inflation with another hike  could provoke both a market sell-off and ensuing rebound; depending on if they indicate 'one and done', which they might not intentionally overtly state.

Between the Fed, Apple and Jobs, there are risks later this week. But there's a mix given the bifurcation that prevails and almost a hiatus of market interest, which is something normally associated with bottoming areas, rather than top formations. Yep; toppy for S&P; the opposite for some small cap; but if and it is an 'if' S&P gets hit, there is a predominant psychology that would restrain enthusiasm most everywhere, for awhile. Hence the idea of big-cap shakeout in the near-future, but one that leads to an entry point rather than catastrophe.

More By This Author:

Market Briefing For Monday, May 1 '23
Market Briefing For Thursday, Apr. 27
Market Briefing For Tuesday, Apr. 25

This is an excerpt from Gene Inger's Daily Briefing, which typically includes one or two videos as well as more charts and analyses. You can subscribe for   more

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