Hey friend,
Charles Green here, Senior Market Analyst here at Traders Agency.
I know I sent out a Market Pulse 360 earlier today, but I don’t think people have fully grasped the implications of the Fed’s decision.
So here’s a second Market Pulse for today.
Market Pulse 360 for March 23, 2023
Given all of the news the market has digested over the past 6 weeks with a high employment number, a tick higher in CPI, a higher PCE number, and most recently, three bank failures, one of which was the second largest bank failure in US history, markets have been incredibly resilient, grinding higher and staying above the 200-day moving average.
Yesterday, the Fed telegraphed an end to rate hikes, and even a rate cut, reducing his target rate from 5.5% – 6% to 4.75% – 5%. Effectively, this is a cut in rates and a strong signal of a pause, because we’re already at this target range!
I think this point may have been lost today, because the focus of questions after his statement quickly turned to the three recent bank failures and insurance on deposits. It did not help that this coincided with the Treasury Secretary’s statement that deposits will not be universally insured 100%.
Reality check: (1) the failure of 3 banks does not equate to a crisis. There are hundreds of banks in the US that are sound, and there is no contagion beyond these 3 banks; (2) it would take an act of Congress to guarantee 100% of all bank deposits; and, (3) these bank failures are actually positive, as it relates to substitutes for rate hikes, because they will cause tighter credit standards for all regional banks, slowing growth. These banks failed as a result of the speed and magnitude of 9 rate hikes since March 2022.
The Fed has a very delicate balancing act now. They cannot raise interest rates much more due to the effect of tighter credit and the most recent data showing a continuation of the downtrend in inflation, slowing of growth in wages, and drops in housing prices.
We are trending in the right direction on inflation, and he recognized this with a softer tone and signal of a pause. In fact, the Fed considered a pause today, but erred on the side of caution. He had to maintain some credibility, and did not want to spook markets by a pivot too quickly.
So where are we now? We have the best technical and fundamental setup since 2009. Yes, there is a monster rally coming, building on the move we’ve already had off the bottom (testing it 10 times in the past 10 months), especially the NASDAQ, which has shown remarkable leadership.
We will continue to grind higher with high volatility, then accelerate to the upside with a definitive pause in rate hikes. Now is the time to position in high quality stocks that will continue to lead the market higher.
Recommended Strategy
Alpha Stocks: These are “top-of-the-line” stocks with the greatest potential for strong moves upward – especially as the Fed pauses rate hikes.
A Bit More About Me
My specialty is understanding financial markets and the drivers that influence longer-term direction. I’ve been an active trader focusing primarily on stocks for over 20 years.
I’ve also:
- Been an adjunct finance professor for nearly 20 years
- Worked as a financial consultant with Merrill Lynch managing millions of dollars
- Earned a Master of Science Degree in International Business and Finance from Georgetown University and a Bachelor in Arts Degree in International Studies from George Mason University.
- Spent 14 years as a Marine (I enlisted at age 17) traveling all around the world
My education, work and life experience gives me a broad view of the world, financial markets, and life in general that informs my trading and investment decisions.
My passion is helping others to take advantage of the best market opportunities to achieve their financial goals.
This gives me the greatest satisfaction, and it’s the reason why I continue to teach in the classroom and outside of it today with every activity in which I engage. I believe that I succeed only if clients succeed.
I am a very unlikely success story. And this is only because I believe that anything is possible with the right knowledge, focus, and winning mentality! When you have that, success is just a matter of time.
Charles Green
Senior Market Analyst, Traders Agency
