It was an ugly session yesterday, but one of the biggest disasters didn’t get any coverage. West Texas Intermediate (WTI) was slammed by 5.29% during the session. All the themes that were supposed to send crude north of $100 a barrel might not hold WTI above $70.00. Maybe the Organization of the Petroleum Exporting Countries (OPEC) will tighten production again, and perhaps China will reboot its reopening, which was supposed to spark monster demand.

Sector Performance

Financials (XLF) were slammed, but more than 80% of stocks were down on the session with Consumer Discretionary (XLY) the sole sector to eke out a gain.

Internals Cracking

Market breadth was an absolute disaster.

Decliners swamped advancers, and down volume swamped the up volume, but new highs to lows offer the best illustration of how troubling the session was:

• On the New York Stock Exchange (NYSE), there was almost a 4:1 ratio of new lows to highs.
• On the NASDAQ Composite there was a 7:1 ratio of new lows to highs.

Market Breadth	NYSE	NASDAQ
Advancers	603	1,293
Decliners	2,399	3,171
New Highs	41	63
New Lows	152	444
Up Volume	741.44 million	1.90 billion
Down Volume	3.73 billion	3.53 billion

Rich depositors at First Republic Bank (FRC) joined their brethren at Silicon Valley Bank (SVB) and Signature Bank (SBNY) in being made whole.

The FRC had $30 billion in uninsured accounts (folks with more than $250,000 in the bank) and they didn’t lose a nickel.

On the other hand, the Federal Deposit Insurance Corporation (FDIC) took a $13.0 billion hit and assumed all the commercial real estate risk. This is nuts, and it’s not bringing any calm to banking.

The carnage in the banking sector was devastating yesterday. Meanwhile, some big-time names are also feeling the heat:  JPMorgan (JPM) -1.61%, Bank of America (BAC) -3.03%, Citigroup (C) -2.65%, Wells Fargo (WFC) -3.84%, US Bancorp (USB) -7.01%, PNC Financial Services (PNC)-2.43%, Truist Financial (TFC) -7.61%, and Goldman Sachs (GS) -2.11%.

There will be calls to backstop all accounts of any size, which has already happened. I think it’s a mistake to bail out the same bank that gave Mark Zuckerberg a 1.0% mortgage when the going rate was 3.50%.

All Eyes on Powell & Company

The Fed is expected to hike rates 25-basis points (bps) today and somehow signal a pause. It will be interesting to see if Powell can resist the tough guy act and offer empathy beyond reading a line of prepared text about the policy hitting everyone.

Portfolio Approach

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

Today’s Session

It’s very interesting to see major indices higher this morning.  They aren’t soaring, but they also aren’t plunging.  The dilemma is clear.  The Fed is fighting inflation, which remains stubborn (see Cleveland Fed Now cast inflation expectations) but guarding against destroying the economy.

Another spike of inflation like last month would send the market scurrying for cover.

ADP Jobs Report

If the Friday jobs report looks anything like this, the Fed will go back to hiking 50 or 75 bps.  ADP says 296,000 jobs created in the private sector last month. 

I like ADP but think the new methodology has created more confusion than their old way or gathering and assessing data.

I think the market is hoping the Fed doesn’t hike at all, even though such a move would invite its own conspiracy theories.

I’m looking for 25 bps and a clear pause language.  That would be a welcomed development for the market and for Main Street.

Comments

Good Luck with that, Charles! Charles Haselberger on 5/3/2023 1:56:16 PM

oil below $70 is great news Jerry on 5/4/2023 3:09:54 PM

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