Market Briefing For Tuesday, March 19
Hesitation into the FOMC meeting is perfectly reasonable; aside our very clear expectations of some sort of pause-to-refresh, or even short-term risk, rising to the surface. Notably this also occurred as 'sentiment' and some sort of 'capitulation to the upside' had just begun; as noted last week when we'd seen that characteristic selling (on the way down and up for months) shift to a buy-side imbalance.
Perhaps, I thought, this latest move to 2019 highs for S&P and Nasdaq to mostly be a trend-chasing run-up; related to Quarterly Expiration; generally after-the-fact of most upsides moves; and counting on a China Trade Deal; which is said 'pending' (even with wording being prepared); but not yet what we might term a fait accompli. Or once it is, will they sell the rally? (Initially; so that may be part of why chatter surrounds it being delayed for now.)
Speaking of; if there's one sector that America has reigned supreme on it's aerospace, and I spent many hours digging into the Boeing story before the 'presumed' conclusion as to the 737 Max problems were generally grasped.
I'm going to update this just for a moment; because a few points continue to leave the outcome 'financially' (and therefore the shares) much in-doubt.
Over the weekend we read the Seattle Times story that generally confirmed a lot of what we had speculated about a week ago. Not just similarities, but misstatements about how over-controlling MCAS software would shift trim; and then apparently 'reengage' repeatedly; despite pilot commands. It came down to the system 'resetting itself' each time a pilot disengaged it. It seems some pilots understood the need to compensate the reset by circuit-breaker disengagement; others didn't know it, and therein comes investment worry.
Here's the sentence that might justify liability down the road. The huge story by a Seattle reporter in-charge of aviation coverage for 15 years concluded in the Times' recap of Boeing's "System Safety Analysis" these shocking details: the first finding states that Boeing, 'understated the power of the new flight control system [MCAS]," and that the MCAS, "was capable of moving the tail more than four times farther than was stated in the initial safety analysis (presumably submitted for FAA Certification) document."
It's disconcerting (although along the theme I speculated last week) that the Times had submitted questions about these findings to the teams at Boeing for comment 'before' the Ethiopian crash. I also noted prior meetings (such as with American Airlines pilots in Ft Worth) in which all this was discussed; and that's part of the software update in-the-works also well before the 2nd crash. You can imagine where this takes plaintiff discovery in the months ahead. It's sad as we really are proud of American aviation and Boeing; but wonder if decentralized teams (on each product) with overall oversight done internally more than by the FAA (who doesn't have many pricey engineers on-staff), and with management now somewhat insulated in Chicago; one has to ponder if the culture changed? We would like to presume it has not.
I'll be generous to say (as I have) that many errors were conceptually made in the design of the 737 Max (cobbled from an old air-frame); while virtually none become risks going forward in the new Boeing 797. But even the 787 (aside the known battery issue) had some manufacturing challenges due to their splitting assembly and then trying to join major parts together (that was resolved long ago by the way). No wonder Boeing was quiet last week with the rollout of the 777x. It should prove to be an awesome success.
On Boeing I'll conclude with the normally-restrained words of 'Miracle on the Hudson' (then US Air) Captain Sullenberger. He writes: "It has been obvious since the Lion Air crash that a redesign of the Boeing 737 MAX8 has been urgently needed, yet has still not been done, and the announced proposed fixes do not go far enough." (I presume he refers to everything I alluded to in regards that basic design with the forward engine mounting and so on.)
In-sum:
With respect to Boeing; here's what worries me more, thanks to a member's message relating the following (which I cannot confirm to be valid; but if so it would be problematic if some airlines have this but others don't). It is being said (let's say rumored) that Boeing sells an option package that includes an extra AoA vane (Angle-of-Attack sensor), and an AoA disagree light, which lets pilots know that or if this problem was happening. Both 737MAXes that crashed were delivered without this option. (If those exist, one presumes the forthcoming 'fix' would include that package; but the question is whether this was 'really' offered as an option, which would imply awareness of the risk.) I suspect there was 'no such option; but something like it retroactively arrives.
Again the issue 'origin' stems from the forward-engine mounting; and that's why I'll bet the anti-stall system is strictly a deal for the 737 Max; and you'll not see it elsewhere; because it isn't needed elsewhere. It's also likely to be cited not just in potential class-action suits; but a dramatic curtailing or order flow; even as they make arguments of nowhere else to go for equipment (I'd not presume that; because now some airlines, like Indonesia's Garuda, are talking about cancelling orders for 737 Max; and replacing with 737-900's (a regular engine mounting with big but not bloated fan engines) or taking early 787's, as more airlines scale-up to 787-800 and 900 longer-range models.
As to the market; it persists in an expected S&P range for now; resistance around 2850. That 'could' come out later Wednesday, 'if' a post-FOMC news conference continues the benign or passive approach. Key might be if they address the Balance Sheet issue in anything other than neutral terms.