Federal Reserve Chairman Jerome Powell must feel like I used to when my mom would ask if I had gone into the cookie jar.  Not taking no for an answer, I was always compromised by the sound that ceramic jar made even when I thought I was lifting the lid straight up.

She would ask again and again, and no matter how incredulous, she just didn’t believe me.

For different reasons, the market is still not convinced Powell & Co can keep rates at current levels for as long as promised.  Are they hearing something akin to that subtle noise that cookie jar made or is it something much louder?

Yesterday, Chairman Powell participated in a virtual debate on the global economy presented by the International Monetary Fund.  He cheered progress but downplayed any change in rate policy.  The economy is coming back, and should, as long as vaccines continue to charge and allow re-openings to continue.

He wants to see a string of one million jobs per month creation as a barometer of progress toward his goals.  Of course, what a “string of months” really means is up for interpretation.  Another nebulous term that will drive Fed-watchers and would-be Fed whispers nuts.

Inflation concerns were discussed. Powell noted there are bottlenecks in global supply chain, which may lead to temporary price increases, but not materially in a way that would push the central bank to raise interest rates.  In other words, it would be transitory.

Moreover, Powell offered these additional observations and reassurances:

“A one-time increase in prices isn’t persistent inflation”

“U.S. has had 25-years of low inflation”

“We’ll monitor inflation expectations carefully”

“Fed has tools to curb too-high inflations”

“Pandemic hit lower income workers most”

“Millions of people will have hard time finding way back into workforce”

Kabuki Theater

It felt like theater when IMF Managing Director urged central bankers around the world to keep printing and to not be pulling back on accommodation while global vaccinations were still being rolled out.   That would have been like my mother giving me free reign to grab as many cookies as I wanted.

Central Bank Balance Sheets

• Fed $7.6 trillion
• BOJ $6.6 trillion
• ECB $8.9 trillion
• PBOC $5.9 trillion

Starting to Believe

I think the street is beginning to believe Jerome Powell will keep rates at current levels and use any rationale to make it happen.  I keep saying to watch unemployment rates for Black and Hispanic Americans to know when Powell will say “mission accomplished.”

As confidence grows that Powell will remain accommodative, look for the market to get a stronger tailwind.  It was good enough yesterday for the major indices to close near session highs.

• S&P 500 +0.42%
• NASDAQ +1.03%
• Dow Ind +0.17%
• Russell +0.86%

The ten-year yield slipped below the trendline, but I would feel more comfortable with it under 1.60%.

Message of the Market

FAANG is back and strutting its stuff.  Tech dominated yesterday, followed by Consumer Discretionary names.

S&P 500 Index	+0.42%
Communication Services XLC	+0.01%
Consumer Discretionary XLY	+0.47%
Consumer Staples XLP	+0.10%
Energy XLE		-1.30%
Financials XLF	+0.03%
Health Care XLV	+0.15%
Industrials XLI	+0.24%
Materials XLB	+0.13%
Real Estate XLRE		-0.49%
Technology XLK	+1.44%
Utilities XLU		-0.08%

With Senator Manchin drawing a line in the sand on ditching the filibuster, the Biden administration will have to negotiate an honest infrastructure deal.  This means it could take longer or not happen at all.  I suspect something will happen but watch the Materials sector.

XLB Chart

Portfolio Approach

We took profits in Materials and added to Technology yesterday and are adding to Materials this morning in our Hotline Model Portfolio.  If you are not a current subscriber to our premium Hotline service, email info@wstreet.com to get started today. 

Today’s Session

The market is going through a classic consolidation phase with investors piling back into mega growth names as comfort food.  The VIX is now at the lowest level since February 2020,  so lackluster internals are more about general angst than fear.

Comments

Charles, your writing, using your early childhood life as a backdrop, is fantastic! It really brings the real life situation in the market to life! Thanks Lorin K on 4/9/2021 10:51:46 AM

Here's the real inflation, when you go to the gas pump, and to the grocery store and buy the same thing you bought a week before for the same price, but the package is smaller and contains less. GAR Smith on 4/9/2021 12:05:19 PM

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