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📊 Powell's Persistence, Banking Distress & Billionaire Blues

📊 Powell's Persistence, Banking Distress & Billionaire Blues

Ticker Tea
February 01, 2024

Yesterday’s Q&A from Powell was anything but exciting. Markets were hoping for a dramatic shift in posture towards rate cuts. Instead, Powell preached what he and other member have for months:

1️⃣ “We are prepared to maintain the current target range for the federal funds rate for longer, if appropriate.”

2️⃣ It wouldn’t be appropriate for the Fed to cut rates “until it has gained greater confidence that inflation is moving sustainably toward 2%”

3️⃣ “Data dependency is still the calling card.”

THE BIG NEWS FROM JPOW: “I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting.”

In other words… wait for it… “higher for longer”

Odds for a March rate cut shifted ~50% → ~33% following the presser. Markets across the board ended negative for the day:

▪️ earnings today: Apple, Amazon, Meta/Facebook and Merck (ER calendar below for companies ~$20bn+ mkt cap). I’ll stick my neck out there and make a prediction: mag7 stocks will sell off regardless of earnings outcome (see Microsoft, Google, AMD, QCOM earnings reaction for support for this hunch…).

▪️ economic data: all eyes on jobs data today: initial claims est. = 212k, continuing claims est. = 1836k (economic release calendar & expectations below)

▪️ New York Community Bancorp’s decision to slash its dividend and focus on stockpiling reserves sent the stock down ~37% and KRE down nearly 6%, the largest sell off since the collapse of Silicon Valley Bank last March.

▪️ Billionaires Barry Sternlicht (Starwood CEO) & Jeffrey Gundlach (DoubleLine CEO) warn of a potential economic downturn which has not yet been priced into markets 👇

▪️ Mastercard is jumping into the AI frenzy with claims it can boost fraud detection by 300%

▪️ New York Community Bancorp's drastic actions, including a dividend cut and reserve stockpiling, have highlighted a burgeoning crisis in the U.S. commercial real estate market, sparking a 38% plunge in its stock and affecting broader banking indices. With banks facing $560 billion in commercial real estate maturities by 2025 and regional lenders being more vulnerable, the sector grapples with plummeting property values, heightened default risks, and increased regulatory scrutiny.

▪️ Barry Sternlicht, billionaire and CEO of Starwood Capital Group, forecasts over $1 trillion in losses for the U.S. office real estate market, a sector that has not recovered post-pandemic. This crisis, exacerbated by rapid Federal Reserve rate hikes and difficulty in refinancing loans, signifies a dramatic decline in office property values and poses a challenge for property owners and financial institutions.

▪️ Jeffrey Gundlach, CEO of DoubleLine Capital, expressed skepticism about the 'Goldilocks' economic scenario, cautioning investors against over-optimism following the Fed's decision to maintain interest rates. He predicts a potential recession in 2024, advising investors to hold cash for emerging market opportunities in the event of an economic downturn.

▪️ Qualcomm reported robust fiscal first-quarter results, surpassing analysts' expectations with a 16% year-over-year increase in smartphone chip sales, signaling a potential recovery in the global smartphone market. Despite challenges in other segments, the company's success in handset chips and expanding ventures into automotive and virtual reality markets highlight its strategic growth and market resilience.

▪️ Federal Reserve Chair Jerome Powell has indicated a cautious approach to lowering interest rates, dampening expectations of a rate cut in March 2024 despite an end to aggressive rate hikes. With inflation pressures easing but the economy still robust, the Fed remains focused on data dependency, balancing the need to control inflation with avoiding premature policy shifts. Here is the comparison of fed statement.