If Fed Day were a sporting event, the announcers would have called it a gusty performance, but I wouldn’t go that far. Nonetheless, the market is exhibiting a fair amount of grit. Investors are beginning to reposition for an oversold bounce, as the biggest declining sectors of the year are among the best so far in May. By the same token, the momentum crowd is staying with Energy (XLE). I was intrigued with Financials (XLF), which has been the biggest disappointment thus far in 2022.

Heat Map

Most tech names were higher, and there were several early reversals on earnings releases like Clorox (CLX) and Mosaic (MOS), which suggest reactions to date have been too harsh in general.

Market Breadth

Market breadth was okay, nothing special; but there were more advancers than decliners and more up volume than the down volume. 

• Overall volume, however, was very light
• Very few new 52-week highs

Market Breadth	NYSE	NASDAQ
Advancers	2,084	2,625
Decliners	1,235	2,065
New Highs	27	37
New Lows	279	288
Up Volume	3.37 billion	2.90 billion
Down Volume	1.27 billion	1.67 billion

It’s Fed Day

Around the world, except in Japan, central banks have voiced a desire to undo their handiwork, which might be a lot easier said than done.

These central banks have tied the global financial system into knots not unlike an M.C. Escher rendering, but without the mathematical elegance. 

It’s unlikely central bankers will go as far as they suggest, and the market is modeling, so it’s probably smart for them to come out of the gate with determined resolve.

What a Tangled Web We Weave

The Federal Reserve is expected to go 50-basis points (bps), but many mavens wouldn’t be surprised with 75-bps. The question-and-answer period is going to be tough – we might even get the questioners to stick to economic questions.

Will The Hammer Wake the Bulls

When Jay Powell and the Fed finally drop the hammer, is it possible it could actually wake up the bulls or stir something in folks cooling their heels on the sidelines?

Generally, rate hiking cycles are just the right medicine for the market.

 

Earnings - Feast or Famine

A lot of earnings beats that saw stocks pop, including:

• Advanced Micro Devices (AMD)
• Starbucks (SBUX)
• Airbnb (ABNB)
• Paycom Software (PAYC)
• Livent Corp (LTHM)
• Cirrus Logic (CRUS)

But those names that missed paid a price that made medieval torture racks look like La-Z-Boy chairs:

• Lyft (LYFT)
• Infinera Corp (INFN)
• Akamai Technologies (AKAM)
• Herbalife Nutrition (HLF)
• Revolve Group (RVLV)

Portfolio Approach

We added a new position yesterday in  Technology in our Hotline Model Portfolio.

Today’s Session

ADP Jobs Report

The ADP jobs report came about 50% below consensus at 247,000 against 395,000. 

Size Matters

You could see this coming a mile away, and yet, it hit this morning like a sledgehammer.  Small businesses lost jobs as they grapple with higher input costs and a runaway wage spiral that has them competing and losing to large businesses.

By Company Size

Small businesses: -120,000

• 1-19 employees -96,000
• 20-49 employees -25,000

Medium businesses: 46,000

• 50-499 employees 46,000

Large businesses: 321,000

• 500-999 employees 32,000
• 1,000+ employees 289,000

Hang on to Your Hat

The FOMC rate hike will be announced at 2:00 today – it will be the largest in decades.  Crazy volatility probably only gets more intense later, as the street grapples with the change in rates, but more importantly with how well Powell handles the press conference.

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