WASHINGTON – Stocks have been sloppy and toppy for at least two weeks now as the McClellan Oscillator’s overbought peaks have formed declining tops as that measure heads for the zero line and below. Wednesday’s Federal Open Market Committee (FOMC) report, followed by Fed Chair Jerome Powell’s presser didn’t help. The Fed economic outlook tanked stocks across the board.
A CNBC report just in provides pretty much all we need to know about today’s market swoon.
After the FOMC dialed up its inflation expectations for the year a full percentage point, Fed Chair Jerome Powell said inflation could run hotter than the central bank expected.
“‘As the reopening continues, shifts in demand can be large and rapid and bottlenecks, hiring difficulties and other constraints could continue to limit how quickly supply can adjust, raising the possibility that inflation could turn out to be higher and more persistent than we expect,’ Powell said during the [Fed’s] press conference.”
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Sell in JUNE and go away?
The usually punctual “Sell in May and Go Away” mantra failed last month as stocks continued to rally. But it looks like that frequently accurate and timely annual phenomenon simply decided to take place in June instead. What a nasty surprise. But not really. Markets remain very overbought.
Pinching in on the market’s declining optimism, ZeroHedge points out the likely end of America’s current very-low interest rate policy.
“The Fed keeps benchmark rates and the pace of bond-buying unchanged but the biggest shift is a hawkish tilt to its rate forecasts as Fed median projections show 2 rate-hikes by end-2023 and 7 FOMC members see a hike in 2022…”
That Fed economic outlook scares the bejeebers out of the easy money crowd. That remains true even though rate hikes were not projected by anyone to occur before 2022 at the earliest. Oh, well…
Aside from the Fed economic outlook…
Most stocks are taking it on the ear this afternoon. But bank stocks, battered for the better part of two weeks and tanking again Wednesday morning suddenly got their mojo back after the Fed’s report. Why? Because banks usually don’t make a ton of money in low-interest rate environments like the current one. But, with at least a vague hope for higher rates, bank stocks and other financial companies started to snap back this afternoon.
JP Morgan Chase (NYSE:JPM) is a prime example. During the last week of May, JPM shares soared close to $170 per share. By this morning, however, they’d faded by over $20 per share, hitting a low early Wednesday of $153.11 per share. But as of 30 minutes prior to today’s 4 p.m. closing bell, the shares are up nearly $2.00 per share over Tuesday’s $155.18 close.
Southern regional banking star Regions Financial (NYSE:RF) is also singing a happy tune. It’s up $0.26 on the day for a current 1.17% gain on the day. The shares currently stand at $21.54 per share.
Full disclosure, BTW. We currently own a modest position in JPM shares at a much lower average price. So we continue to hold. It’s been one of our better positions, although no stock is immune from bad news or headlines. We started accumulating RF shares much more recently, but it’s not yet a very large position.
Stocks still look weak as Wednesday’s closing bell approaches
Stocks in the retail sector continue to get hit, based on likely declining post-pandemic sales. Consumers are still spending, big time. But their spending appears to be shifting away from real estate (prices too high) and retail goods (bought enough already) right now. Where to? Not yet clear, but we’re looking.
Meanwhile, retail issues continue to struggle in June. Except maybe for Amazon.com (NASDAQ:AMZN). It’s up today over 1% to stand at a whopping per share price of $3419 at the moment. We have a tiny position in these shares, for obvious reasons, even though we are coming to regard this company as one of this century’s premier retail / tech robber barons.
In general, we continue to sell off our more marginal positions. The market doesn’t look too hot right now. And if it really, really heads south this summer, we’d prefer to be mostly in cash. Small investors would be wise to consider a similar stance. We won’t sell everything we own, as some stocks will stabilize much earlier than others in any correction. But being fully invested right now becomes riskier by the day.
Stay tuned.
—Headline image link: Branco Cartoon via Comically Incorrect, reproduced with permission.
