Now, yesterday was an impressive session. Just as it appeared – Russia’s downing of a U.S. drone over the Black Sea would be the pretext for traders to scalp gains and move back to the sideline; buyers reemerged and lifted the market into the close.

Market Breadth was bullish, although ‘new highs’ must stage a big move to add steam to the bounce.

Sector & Industry Performance

Don’t look now, but high Beta names lead mega cap stocks.

The Internet led the way among industries as Meta (META) shares erupted more than 7% as the maturation of Mark Zuckerberg continued. But there were additional strong movers, including DoorDash (DASH) (California gig ruling), Match Group (MTCH) (upgrade), and Pinterest (PINS) (classic bottom fishing).

Inflation

I must confess, I thought core inflation would spark selling because it exceeded the consensus, and it has been edging higher for months.

That being said, core inflation peaked long ago, and we are setting up a pennant formation – a decisive move is coming soon.

There will be lots of economic data this morning, including Retail Sales and the Producer Price Index (PPI). I hope you haven’t unlatched your seat belts yet – it’s okay to loosen them… but this ride is far from over.

Portfolio Approach

We are suspending our current Buys list this morning.

Today’s Session

The top story comes out of Europe and has been sixteen years in the making.  I have to admit seeing Credit Suisse (CS) impact the market to the degree it has this morning is a surprise because it’s been a slow-moving train wreck since the shares peaked in April 2007.

Retail sales and PPI came in nicely for those rooting for signs of slowdown in inflation but their releases didn’t move the needle for markets or Fed fund rates.  Details on those reports in afternoon note.

Bad News is Bad News

The Empire Fed report was came in well below consensus.

Business activity continued to decline in New York State, according to firms responding to the March 2023 Empire State Manufacturing Survey. The headline general business conditions index fell nineteen points to -24.6. New orders dropped significantly, and shipments declined modestly. Delivery times shortened for a second consecutive month, suggesting supply availability improved, and inventories were steady. Both employment and hours worked declined for a second consecutive month. Input and selling price increases slowed somewhat. Looking ahead, businesses expect little improvement in conditions over the next six months.

 

ACTIVITY CONTINUES TO CONTRACT

Manufacturing activity continued to decline in New York State, according to the March survey. The general business conditions index fell nineteen points to -24.6, continuing the see-saw pattern of ups and downs within negative territory seen in recent months. Twenty percent of respondents reported that conditions had improved over the month, and forty-five percent reported that conditions had worsened.

LABOR MARKET INDICATORS WEAKEN

The average workweek index fell six points to -18.5, its lowest level since early in the pandemic, indicating that hours worked shrank for a fourth consecutive month.

LITTLE IMPROVEMENT EXPECTED

The index for future business conditions fell twelve points to 2.9, suggesting that firms do not expect activity to improve much over the next six months.

Current Indicators

Forward Indicators

This violent reaction to developments in Europe looks like the market is trying to force the Fed’s hands as Jay Powell will probably have to choose stability over prices although the lag effect looks like tis making an impact. This is not the time to panic!

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