The Fed did it.  It raised the fed fund rate by 75-basis points, the highest increase in 28 years.  This takes rates to a range between 1.50-1.75%. Inflation concerns and data from the last CPI report spurred the large move.  In addition, it is likely we get another 75-basis points in July. 

The markets seemed pleased with the news at first,  and the markets rallied, but by the end of the day, while up nicely, it was back to about the same level before the announcement. 

Ten of the 11 S&P sectors were in the green with Consumer Discretionary the best performer and Energy the laggard.  WTI declined 3.1% to  $115.25 based in part by President Biden comments that "at a time of war"  it is not acceptable  for big oil companies to have refinery margins well above normal.

S&P 500 Index	1.46%+
Communication Services XLC	+2.36%
Consumer Discretionary XLY	+3.02%
Consumer Staples XLP	+0.08%
Energy XLE		-2.12%
Financials XLF	+1.24%
Health Care XLV	+1.02%
Industrials XLI	+1.01%
Materials XLB	+0.03%
Real Estate XLRE	+2.33%
Technology XLK	+2.17%
Utilities XLU	+0.68%

The mega cap stocks where the best performers.

Advancers led decliners by a nearly 3-to-1 margin at the NYSE and the Nasdaq. Still, the new lows remain a telling and cautionary tale.

Market Breadth	NYSE	NASDAQ
Advancers	2,398	3,387
Decliners	877	1,306
New Highs	5	21
New Lows	337	381
Up Volume	4.23 billion	4.26 billion
Down Volume	1.09 billion	1.02 billion

Comments from Fed Powell’s presser:

Fed's Powell: - We are moving expeditiously on rates - We have the tools and resolve to restore price stability

• Indicators of inflation expectations have risen - In response to this, the Fed decided a larger rate hike was warranted  
• Pace of ongoing rate hikes will depend on incoming data - I do not expect moves of 75 bps to become common
• We are moving expeditiously on rates - We have the tools and resolve to restore price stability  
• It is essential that we bring inflation down - The economy is resilient 
• Labor market is extremely tight
• Inflation is far too high
• Activity in the housing sector appears to be softening - We are in the process of significantly reducing our balance sheet  
• Financial markets show they understand the path we lay out - After CPI data we thought a bigger rate hike was appropriate

Once again, not a single question on the elephant in the room at the FOMC presser: the Fed/Government’s role in creating the situation we are in.

Supply chains and war blamed a number of times, but no mentions of 0% rates, $5 trillion in bond purchases, and $7 trillion in national debt. I expect nothing less from them (they did the same after the housing bubble/financial crisis, never accepting responsibility), but where were the media? Are they not allowed to ask anything other than softball questions that portray the FOMC as an infallible/omniscient body?

Meanwhile, according to the 'dot plot,' the FOMC committee sees rates at 3.4% at the end of 2022. This would imply another 165 basis points of tightening this year.

The Fed also sees rates at 3.8% in 2023, before falling to 3.4% in 2024.

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Portfolio Approach

There are no sector weighting changes this morning in our Hotline Model Portfolio.

Today’s Session

It is not just the US raising rates to tame inflation, Switzerland unexpectedly raised by 50 basis points, Brazil by 50 basis points, and the Bank of England by 25-basis points.

After the last FOMC meeting, the market rallied that day and then got crushed the next day. The same appears to be happening this morning. Markets are under pressure as investors have had time to mull over the news and the prospects for a potential recession.

The biggest winners yesterday are among the biggest loser in so far today. The fears of an upcoming recession and the impact on consumer spending is adding downside pressure

Apple (AAPL) is down 2.5% this morning as the company comes close to breach its $2 trillion market cap.  It was not long ago it was over $3 trillion.

We got several pieces of economic data this morning.

Initial jobless claims were down 3,000 to 229,000 from the prior week. Continuing claims however rose to 1.312 million from 1.309 million.

It was disappointing housing numbers.  May housing starts were down 14% to an annual rate of 1.59 million.  Building permits declined from 1.823 million to 1.695 million.  This decline follows yesterday’s June NAHB Housing Market Index slipping from 69 in May to 67. 

The Philadelphia Fed index decreased to a -3.3 in June, taking it in for the first time since May 2020. New orders dropped sharply to -12.4, prices edged lower, inventories contracted, and delivery times fell.

 

Philly Fed Manufacturing	June	May	April	March
General Business	-3.3	2.6	17.6	27.4
New Orders	-12.4	22.1	17.8	27.4
Shipments	10.8	35.3	19.1	30.2

Markets are under a lot of pressure.

Comments

No one takes responsibility for anything anymore, and this administration is so incompetent on all levels. Really contemplating eating my roughly 30% loss and getting out of the market, very few wins since late January. Bruce Hongsermeier on 6/16/2022 10:34:35 AM

Bruce H is thinking along the same lines as us!!!! RONALD RICHARDS on 6/16/2022 12:10:12 PM

To BH & RR: I’ve been through these Bear Markets several times. I’ve had friends sell at these levels, when I was buying. At lease wait for a bounce. A GOP Landslide in November, taking control of the Senate and Congress, could change everything, for the better, IMHO. The world IS NOT ENDING. Tom Holcomb on 6/16/2022 2:58:39 PM

Guy's Please Don't get out now, w/covid in march of 2020, I rode it down well over 100%, it dwindled to $171 k and was back up to $564 k before the years end. It will go back up "This Time Too", maybe not that fast, but it also cud happen even faster, as well. I KNOW THAT IT SURE DON'T FEEL LIKE IT NOW ! ONE THING I HAVE LEARNED OVER THE YEARS, THERE IS ONLY ABOUT A HALF DOZEN DAYS EA YEAR, THAT YOU HAVE TO BE IN THE MARKET TO BE UP BIG, UNLESS YOUR LUCK IS MUCH BETTER THAN MINE, GUESSING AT THOSE ARE MORE RISKY THAN VEGAS SLOTS ! thomas harris on 6/16/2022 4:36:20 PM

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