The question is how much of yesterday’s session was rubbernecking the Trump indictment and how much was a reaction to economic data that is softening very fast?

I suspect it’s the latter.

The best place to see that is in the sharp decline in bond yields, especially in ten-year bonds that closed at 3.34%. Diving bond yields are a sign of panic. This is the canary sending out a clarion call.  I still think the Fed can save the day by saving the nation. There is no reason to burn this economy down – it’s already begun the implosion process. Instead, Powell & Co. should consider how to take a victory lap without gloating that people have lost jobs, wealth, and many dashed and delayed dreams.

Banks Still Simmering

Industrials (XLI) took it on the jaw, with United Rentals (URI) leading all names lower on the session.  This was one of my favorite names coming into the year, and even after we took more than 20% profits, the name kept surging higher. We are going to reassess Industrials. Nothing is more frustrating than the move in Energy (XLE) - the carnage among individual names, especially refiners, was shocking a day after that monster production cut announcement. Financials (XLF) was hit again, and a closer look points to bank weakness.

Banks were down -1.90%, underscoring the lingering risk that Jamie Dimon says will be with us for years.

Excerpt from JPMorgan Shareholder Letter:

We are watching SPDR S&P Regional Banking ETF (KRE) to see if it holds recent lows.

Broad Market

Even in rough seas, Growth outperformed Value. It just doesn’t make sense to fight that trend. Sure, ring the register from time to time, but I think it’s a mistake to fight or bet against it at the moment.

Metals were intriguing as well yesterday.

Portfolio Approach

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

Today’s Session

There is more disturbing news on the labor front, as the ADP Jobs Report for March just laid a huge egg.

• 145,000 actual
• 210,000 estimate
• 242.000 prior

Lots of Pain

Tremendous pain in the South and mounting job losses in financial activity and professional services.  The number is hit or miss with respect to correlating with the BLS report, but I bet we’ll see similar trends on Friday.

There is an eeriness in the market, as the magnetic pull of higher interest rates begins to take a toll on the economy. And yet, the Fed keeps talking about one more hike.

Comments

Powell & Co. should continue to focus on bringing inflation down to the 2% target. To take their foot off the brake now will be a fatal error if inflation reignites. And yes, their will be a recession that causes much pain. That being said, inflation is the greater risk. Charles A Haselberger on 4/5/2023 1:26:37 PM

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