It turns out a regional bank based in California had more sway over the stock market than one of the biggest companies in the history of humankind. First Republic Bank (FRC) initially sank in solitude but acted like a magnetic force dragging the entire market along for the ride. Depositors that haven’t fled the bank are loading up on Certificates of Deposit (CDs), which pay an average rate of 2.93%, but newer offerings pay substantially more:

Annual Percentage Yield (APY)

• 60-day CDs 4.75%
• 5-month CDs 4.95%
• 8-month CDs4.0%

Funding Nightmare

Meanwhile, management has short-term Federal Home Loan Bank (FHLB) advances of $184.8 billion, up 1099% at an average rate of 4.80%. Excluding withdrawals from rivals, actual customer deposits declined by 58% in the first quarter.

It’s unclear if more depositors continue to flock to CDs and how much longer the company can juggle the additional cost to compete in this higher-rate world.

This is a real dilemma as the government is loath to bail out another batch of billionaire deposits.

Tough Sledding

Interestingly, Financials (XLF) was not the worst performing sector, as Utilities (XLU) took that honor.  Growth fared well, all things considered, as Technology (XLK) held on for dear life to its magnificent gain.

Technical View

The S&P 500 continues to stall in the shadows of 4,200, and at some point, that failure will trigger selling. Key support is 3.800.00.

You don’t have to be a diehard fan of the Dow Theory to understand how worrisome the breakdown in the Dow Jones Transportation Average has become.

Small-caps began the year with so much hope and now hang by a thread.

The Economic Calendar

The Initial Jobless Claims loom large considering the major spike higher of late, but all eyes will be on the first-quarter Gross Domestic Product (GDP).

Forecast

The Street is looking for the first quarter of 2023 (1Q23) GDP to come in at 2.0% from 2.6% in the fourth quarter of 2022 (4Q22). But the report takes on greater curiosity and risk after the Atlanta Fed GDPNow tracker swooned to a read of 1.1% from 2.5% last week and 3.3% a month ago.

Highlights

• Cap spending to fiscal 2022 levels.
• Roll back some of the Biden administration’s climate measures.
• Clawback funding from the Internal Revenue Service.
• Impose stricter work requirements for food stamps and Medicaid recipients.
• Rescind unspent Covid-19 relief funds.
• Block student loan forgiveness.
• Raise the debt limit through March 2024 (or until the nation’s debt grows to $32.9 trillion).

I didn’t think this would be a market issue, but it’s turning into a market issue egged on partly by the media and typical Washington, D.C., brinksmanship. The current showdown is compared to 2011, which watched the market sink by 19.5% and the U.S. credit rating downgraded. I know the debt ceiling will be raised, but not sure what the path from here to there looks like.

Meta Does it Again

Former professional basketball player Ron Artest changed his name to ‘Metta World Peace’ in the middle of his career. His best day as a pro with the new name was 39 points in a losing effort.

Last year, Mark Zuckerberg panicked and laid his Metaverse cards on the table as his core businesses were stalling. The gambit didn’t pay off, as the stock was crushed, and the company delivered three straight quarters of earnings misses. That might be changing. The company delivered a slam dunk quarter (versus the estimates) that Zuckerberg described as “good.”

But the Metaverse division (Reality Labs) lost almost $4.0 billion dollars, like a professional basketball player scoring their highest points in a game where the team loses. The good news is nobody is looking for the Metaverse to be much for a long time. Instead, many would like to see the company slow down on losses associated with this fantasy world unless they can make it an Artificial Intelligence (AI) play.

Portfolio Approach

We are adding a new position to Technology in our Hotline Model Portfolio this morning. If you are not a current subscriber to our Hotline, contact your account representative or email Info@wstreet.com to get started today. 

Today’s Session

The first read on GDP is in, and it’s a mixed bag; although, the headline saw a big miss, +1.1% growth versus consensus of +2.0%.  Prices were higher at 4.0%, up from 3.9%, consensus was 3.7%.

Looking for a solid start, but it’s been the weak finishes that have been worrisome.  If that turns around, we could see a monster breakout.

Comments

Thank you for all you do!!! Charles, please read this article. The root causes of our economic demise. https://amgreatness.com/2023/04/23/do-we-even-know-we-are-all-socialists-now/ THOMAS WILSON on 4/27/2023 10:30:33 AM

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