(Justin Vaughn, Editor, Options Trading Report)
For the second week in a row, stocks took a beating with all three indexes dropping…Last weeks CPI (Consumer Price Index) doused investors and traders’ short term outlook with concerns the Fed will react more positively to a rate hike in the short term. Even the University of Michigan sentiment survey report for March showed less optimism, lower than expected from economists. Yields on the 10-year U.S. Treasury edged higher to 4.30% from 4.088% reflecting a sluggish market, with a majority of equities slipping lower. “Interest rate sensitivity is coming back into the market,” said Tim Courntney, chief investment officer at Exencial Wealth Advisors.
The week opened on a positive note with the Magnificent 7 igniting its ‘brothers and sisters,’ as all three indexes were ‘taken’ by a wave of interest in AI prospects. As the techies lit the market, nearly all related sectors chimed in for gains, finishing the day positive. Tuesday’s opening was unnoteworthy, with the market anticipating what the Fed ‘might be up to.’ All attention focused on what the Fed’s policy meeting might result in, as Mr. Powell and his colleagues dissect CPI figures and other economic reports. Speculation was that interest rates would be allowed to ‘run,’ with two or three rate hikes to follow this year. Bitcoin took a breather Tuesday dropping 5%, with most cryptocurrencies following suit.
Wednesday’s much awaited Fed announcement was anticlimactic–as the Fed stood pat for now, leaving the possibility of three interest rate hikes for the remainder of the year. Mr.Powell said he was optimistic that in the coming months inflation would slowly ease downward. As expected, Wednesday’s opening was flat prior to the release. After the announcement the indexes popped. All three charged to higher levels: the Dow Jones Industrial Average hit a new high, closing at 39512, the S&P 500 gained 0.8% rising to a record of 5224.62, while the tech heavy Nasdaq Composite topped 16,369, a banner day for a majority of equities.
Stocks continued on a tear Thursday, happy with the Federal Reserve’s news yesterday. All three indexes were strong again, with the Dow Jones Industrial Average up 300 points in late afternoon trading. The S&P 500 surged above 5250, while the Nasdaq Composite was up 0.6%. Gold is steady, above $2,200 an ounce, while the 10-year U.S. Treasury note yield is 4.27% down slightly from yesterday’s 4.30%.
Chocolate Lovers Pay Dearly…Cocoa is up three times the price a year ago. Inclimate weather in Ghana and Ivory Coast in West Africa, two of the largest producers of cocoa in the world produced one third less crop than last year according to data from the International Cocoa Organization. Harvests were severely affected by heavy rains and abnormally hot, “dry air brought from the desert interior by Harmattan winds.” Prices began to increase early summer, with a weak harvest. Cocoa prices closed last week at $8,018 a metric ton, up three times the price a year ago. Just this past week Thursday and Friday, cocoa prices soared $1,105. Hershey CEO Michelle Buck warned stockholders in February that the excessive cocoa prices could severely impact earnings, and earnings growth. Citigroup commodities analyst Aakash Doshi told clients “cocoa prices could reach as high as $10,000 a metric ton in the next three months, with prices falling in the second half. Chocolate Connoisseurs Beware: Mr. Buffett’s SEE’S CANDIES brand is in the ‘cat-bird’s’ seat!
RUMBLINGS ON THE STREET
Ed Yardeni, president of Yardeni Research, Barron’s “If the Fed is really as data dependent as it says, there’s no good reason for a rate cut at all,” says Mr. Yardeni. “Even productivity growth has made a comeback, which suggests the economy can continue to grow with a higher fed-funds rate.”
Dana Telsey, CEO, Telsey Advisory Group, Barron’s “Every consumer-focused company is thinking about how to drive revenues by incorporating AI (Artificial Intelligence) to activate consumers and streamline costs.” (Barron’s has included Telsey on their annual list of the 100 Most Influential Women).
Sinead Colton Grant, Chief investment officer at BNY Mellon Wealth Management, WSJ “From a central banker’s perspective, the worst thing you can do is have the economy take a lot of medicine in terms of higher interest rates to get inflation under control and then cut rates too early, before you’ve really seen inflation come down materially to a level where you’re confident that it will continue to be low and move lower.”
David Kelly, chief Global Strategist, JPMOrgan Chase Asset Management, Barron’s “I worry about some things in society–what social media is doing to all of us, which isn’t good. Often at speeches, people ask me for advice, and I say get a pitcher of water and a baseball bat. And if you would kindly drop your cellphone into the pitcher of water and take a baseball bat to your TV, you would feel much better.”