Much has been said and written about Jay Powell’s frustration with the market not taking him seriously.  The thing is, the market is all ears with knee-jerk reactions on Fed Day, and yesterday was no exception. 

Equity indices bounced around on each answer, seeking a sign for the takeoff that never materialized.  Instead, the market imploded as it has most times during Powell’s reign at the Federal Reserve.

It got ugly for Financials (XLF) but even worse for Real Estate (XLRE) stocks.

Economic & Fed Fund Rate Assumptions

The Fed sees lower Gross Domestic Product (GDP) for this year and next year but no recession.

Meanwhile, fed funds are seen peaking far below 6.0% and declining over the years, although that is a crazy range (see dots) and another reason it’s a waste of time for the Fed to look out too far.

Impromptu Plea for Calm

There is always an official press release from the Federal Reserve read before the chairman takes questions. Yesterday, Jay Powell added language before reading the official statement.  The comments below were designed to illicit calmness. But judging from the stock market reaction, they may have backfired as the Financials (XLF) were the hardest hit S&P 500 sector, and regional bank stocks were slammed even more.

Good afternoon. Before discussing today’s meeting, let me briefly address recent developments in the banking sector.

In the past two weeks, serious difficulties at a small number of banks have emerged. History has shown that isolated banking problems, if left unaddressed, can undermine confidence in healthy banks and threaten the ability of the banking system as a whole to play its vital role in supporting the savings and credit needs of households and businesses.

That is why, in response to these events, the Federal Reserve, working with the Treasury Department and the FDIC, took decisive actions to protect the U.S. economy and to strengthen public confidence in our banking system. These actions demonstrate that all depositor savings and the banking system are safe. With the support of the Treasury, the Federal Reserve Board created the Bank Term Funding Program to ensure that banks that hold safe and liquid assets can, if needed, borrow reserves against those assets at par. This program, along with our longstanding discount window, is effectively meeting the unusual funding needs that some banks have faced, and makes clear that ample liquidity in the system is available.

Our banking system is sound and resilient, with strong capital and liquidity. We will continue to closely monitor conditions in the banking system and are prepared to use all of our tools as needed to keep it safe and sound. In addition, we are committed to learning the lessons from this episode and to work to prevent episodes—events like this from happening again.

Reading Candlesticks

Investors were diving for cover everywhere except Gold. Rate-sensitive investments took it on the chin.

Heat Map

Semiconductor stocks were the lone green on the screen, reminding investors we will need computer chips more than ever as we prep technology to take over all aspects of our lives, from thinking to walking the dog.

The Fear & Greed Index remains in ‘Fear’ and is vulnerable to shift to Extreme Fear sometime soon.

Yellen

Janet Yellen finally set the record straight – all depositors are not covered above $250,000. But, unfortunately, those comments amid the Federal Open Market Committee (FOMC) announcement and press conference were underhanded.

Be that as it may, it’s official…no bailout for regular folks.

Portfolio Approach

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

Today’s Session

The market is still grappling with what to make of yesterday’s news, which was billed as a ‘dovish hike;” but accompanied with enough tough talk to give investors pause.

Meanwhile, initial jobless claims came in below consensus again. The news stalled the market, but only for a moment.  There isn’t a lot of conviction per se.  High Beta names are powering the NASDAQ higher, as bond yields move lower.

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