What happened this week? Stocks get walloped after Fed Chairman “JJ” Powell raised rates by 25 basis points. Testimony about bank deposit guarantees from Treasury Secretary Janet Yellen takes some of the blame. Investors should get their “shopping lists” handy in response, recommends Kenny Polcari, managing partners at Kace Capital Advisors LLC.
Investors appeared to be okay with Powell’s action and comments at first, with stocks holding their own. In fact, at 2:50 pm – 20 minutes into the press conference – we saw the S&P up over 1%, the Dow was up more than 250 points, and the Nasdaq was up by 260+ points, or 1.5%.
JJ indicated that Wednesday’s hike “could be the last one ‘for now’” – or maybe not – and that the Fed has to wait to see how badly (or not) the banking turmoil creates trouble for the economy. So, what happened to cause the markets to get slammed?
Well, he did NOT definitively say that rate hikes are complete. Plus, he did take rate cuts OFF the table (I never thought they were ON the table). That caused some to throw a temper tantrum, sending stocks down.
Then his sidekick Janet Yellen did a 180-degree about-face, telling lawmakers that “she wasn’t considering ways to provide broad guarantees – blanket deposit insurance - to uninsured bank deposits.” And I say that it was an about-face because only three days earlier, she told us the complete opposite.
By the way, here’s something Janet apparently missed: When the Fed, the FDIC, and Treasury backstopped depositors at SVB and other banks, they essentially backstopped EVERYONE at every bank in the country. That was the message. There is no doubt about it because everyone saw it that way and bank stocks rallied hard the day after.
Janet also said that policymakers were looking at ways to make it happen. So, I guess she was speaking out of line. She never did the math to figure out how much exactly that might be and lawmakers on Capitol Hill were surprised. In any event, stocks fell out of bed and closed on the lows of the day.
As for where we go from here, there will be lots of discussion and commentary this week as Wall Street analysts and strategists try to decipher exactly what was said. Remember – some people saw the sun while others only saw rain.
Either way, I remain in the camp that careful analysis and allocation of money is a top priority. I’m sticking (overweight) with the big, yet boring, names across tech, healthcare, financials, energy, and industrials, with smaller weights in everything else. Make your shopping list, pick your entry points, then wait until the best time to strike.