Wall Street has all eyes on the Federal Reserve today with the latest policy announcement due at 1 p.m. CST, followed by a press conference with Fed Chair Jerome Powell at 1:30 p.m. CST.

Most anticipate a 25 basis point rate hike which would put the Fed's benchmark in a range of 4.75%-5.00%. For a historical perspective, the last time the Fed funds rate was that high was 2007, just before the Global Financial Crisis.

Before reaching that level, the Fed hiked rates 17 times between June 2004 and June 2006, starting from a low of just 1.0% to a high of 5.25%. The current rate hiking campaign began in March 2022 at a low of 0.25%-0.50%, so the Fed has lifted rates more than twice as fast this time around.

In September 2007, after banks ran into trouble with mortgage-backed securities and began to topple, the Fed was back to cutting interest rates. By December of 2008, the Fed funds rates had plunged to 0%-0.25% and the US economy slammed into the Great Recession. To some, the current situation seems eerily similar so investors want to hear reassurances from Powell today that the financial system is stable and the Fed's safeguards can contain any potential fallout.

Keep in mind, Powell just a couple of weeks ago was warning about the possibility of raising rates "more than expected," which most took to mean that a 50 basis-point hike was likely at this month's policy meeting. That was based on January data that showed inflationary forces had returned, however, and more recent data indicates that "disinflation" is back... or the January numbers were a fluke.

Regardless, bulls believe the recent data coupled with the banking sector turmoil has made a case for the Fed to end its hiking campaign, if not at this meeting than at the next one on May 2-3 (no Fed policy meeting in April). More importantly, bulls are hoping the Fed's so-called "dot plot" shows interest rate cuts happening by the end of the year, which in turn could help stocks rally higher.

Bears however aren't convinced that Fed's inflation fight is finished and expect the dot-plot will reflect still higher interest rates by year end. Even if the Fed does indicate a pause, bears warn that any resulting "relief" rally might be short-lived as investors turn attentions to the upcoming Q1 2023 earnings season.

Big Wall Street bank results will "unofficially" kick things off on April 13, about 3 1/2 weeks from now. In the lead up, bears expect considerable analyst downgrades that reflect the impact of tighter financial conditions and a slowing US economy.

Currently, analysts are most optimistic about the "Energy" and "Communications Services" sectors and most pessimistic about the "Consumer Staples" sector, according to FactSet. Outside of the Fed announcement today, there is not much else to distract investors with no notable economic data or big names on the earnings calendar

Commercial Real Estate Struggles Could Hit the Smaller Banks Hard: A pullback in lending among small banks in the U.S. was already underway before the collapse of Silicon Valley Bank and Signature Bank. Now economists expect to see more tightening and stricter lending standards among smaller banks is likely to slow economic growth overall. But the commercial real estate sector, already battered by rising interest rates and half-empty office buildings, is particularly at risk. Big banks get a lot of attention, but there are about 4,800 banks in the U.S. and the small ones play a large role in the economy, as a recent Goldman Sachs report notes. Small and mid sized banks, defined as domestically chartered banks not among the 25 largest, currently hold 67.2% of all outstanding commercial real estate loans, and 37.6% of loans overall. By the end of last year, banks were already pulling back on lending, as they saw more deposits head out the door, said Chad Littell, CoStar Group's national director of U.S. capital markets analytics. Regular consumers had burned through excess savings, and needed money to pay the bills. About 40% of loan officers said they had tightened lending standards in the commercial real estate space during the last quarter of 2022, per an analysis of the Fed's most recent quarterly survey of loan officers by CoStar. Source Axios

Money-Market Funds Swell to Record $5.4 Trillion: Assets held by money-market mutual funds grew to a record high $5.4 trillion last week as inflows hit the fastest pace since the start of the COVID-19 pandemic following the collapse of Silicon Valley Bank. This latest milestone marks the culmination of what has been a banner year for money funds. What started as a trickle of inflows last March after the Federal Reserve delivered its first interest-rate hike since 2018 has surged into a flood, with more than $460 billion flowing into money funds since mid-March 2022 as the Fed has hiked its policy rate by nearly 5 percentage points, according to Crane. Nearly half of that sum has arrived since the start of 2023, and the rapid inflows seen during the two weeks through Friday have coincided with a flight of deposits from regional lenders, exacerbating a trend of shrinking bank deposits that started in 2022. During the week that ended on Friday, investors dumped $129.3 billion into money-market funds, the fastest weekly pace since the pandemic, as the collapse of SVB triggered what one money-fund portfolio manager described as an “awakening” among investors. During the prior week, investors added more than $20 billion, bringing the two-week total north of $150 billion. Source Market Watch

Dodge's Last Gas-Fueled Muscle Car... Fastest Production Car on Market: The 2023 Challenger SRT Demon 170 will deliver 1,025 horsepower from its 6.2-liter supercharged V-8, and the automaker says it will be the quickest production car made. Stellantis says it can go from zero to 60 miles per hour in a scary 1.66 seconds, making it faster than even electric supercars from Tesla and Lucid. It’s what the performance brand from Stellantis is calling the last of the rumbling cars that for decades were a fixture of American culture on Saturday night cruises all over the country. Stellantis will stop making gas versions of the Dodge Challenger and Charger by the end of this year, squeezed out by stricter government fuel-economy regulations and an accelerating shift to electric vehicles to fight climate change. Source Fortune

Anxiety Strikes $8 Trillion Mortgage-Debt Market After SVB Collapse: Strains in the banking sector are roiling a roughly $8 trillion bond market considered almost as safe as U.S. government bonds. So-called agency mortgage bonds are widely held by banks, insurers and bond funds because they are backed by the mortgage loans from government-owned lenders Fannie Mae and Freddie Mac. The bonds are far less likely to default than most debt and are easy to buy and sell quickly, a crucial reason they were Silicon Valley Bank’s biggest investment before it foundered. But agency mortgage-backed securities, like all long-term bonds, are vulnerable to rising interest rates, which pushed their prices down last year and saddled banks such as SVB with unrealized losses. Now that the Federal Deposit Insurance Corp. has taken over SVB, investors expect the bonds to be sold off in coming months, adding supply to the weakened market and pushing prices even lower. Money managers, who must mark investments at market prices, sold a lot of their low-coupon MBS at a loss. But banks largely held on. Now bank analysts and MBS investors alike are probing the holdings of other midsize banks out of fear their depositors will also lose confidence. Charles Schwab Corp., Truist Financial Corp., and U.S. Bancorp are some of the largest holders of agency MBS among midsize U.S. financial institutions. Source WSJ

Inside the Housing Market: Sales of previously owned homes rose +14.5% in February compared with January, according to a seasonally adjusted count by the National Association of Realtors. It was the first monthly gain in 12 months and the largest increase since July 2020, just after the start of the Covid-19 pandemic. Sales might have been even higher were it not for what is still very low supply. There were just 980,000 homes for sale at the end of February, according to the Realtors, flat compared with January. At the current sales pace, that represents a 2.6-month supply. A balanced market between buyer and seller is considered a 4- to 6-month supply. All-cash sales accounted for 28% of transactions in February, down from 29% in January but up from 25% in February 2022. Individual investors returned, making up 18% of buyers, up from 16% in January but down from 19% in February 2022. When looking at sales at different price points, sales were down the most in the top, million-dollar-plus segment. The median selling price in the West dropped -5.6% from February 2022, the biggest annual decline since late 2011. Median prices in the Northeast decreased -4.5%, also the most in more than a decade. While lower list prices could bring more potential buyers off the sidelines, high borrowing costs are putting the squeeze on affordability and a lack of homes for sale could limit how far prices will fall. Sourc Bloomberg

Many Americans Are Spending More Than They Can Afford on Rent: While inflation has begun to ease slightly, one area continues to become less affordable for Americans – paying the rent. The Realtor.com® February Rental Report found that despite a slight decrease in rent prices, affordability continued to get worse in 26 major metros. In February, the median rent in the 50 largest metros declined to $1,716, down $1 from last month and $48 from the peak. However, rents are still up 3.1% from one year ago. Renters earning the typical household income devoted 25.3% of their income to lease a typical for-rent home, up from 24.8% a year ago. The pace of rent growth has slowed for the past 13 months and experienced single-digit growth for the past seven months. Despite this, rent prices are still +$296 (+20.8%) higher than the same time in 2020 (pre-pandemic). All eight of the most rent-burdened metros are located along the coast with Fla. (three markets) and Calif. (three markets) leading the pack. On the other hand, the American Heartland led the way in terms of affordability. Oklahoma City, Okla. was the most affordable rental market in February with residents paying 17.4% of income on rent, followed by Columbus, Ohio (18.2%), Minneapolis, Minn. (19.0%), Cincinnati, Ohio (19.4%), and Kansas City, Mo. (19.8%). Source Realtor.Com

SVB Failure Offers Lessons About Communicating in a Crisis: One of the key takeaways from SVB’s unwinding is that how weak banks communicate in the coming days and weeks may become just as crucial to maintaining stability. Sure, SVB was going to take a financial hit under any circumstance, but profound missteps in its messaging strategy seem to have made a bad situation worse, possibly fueling the massive bank run that saw its clients attempt to pull $42 billion in a single day. “As opposed to reassuring us with facts, SVB took the ‘you owe us your loyalty’ route—and in a panic situation, that messaging doesn’t work,” an unnamed venture capitalist told Axios. The best, most reassuring communication is honest and transparent—a rule that’s somewhat obvious in theory but easily overlooked during a crisis. Instead, SVB’s first announcement about the crisis, a press release published on March 8, was woefully “convoluted,” TechCrunch wrote. Its timing was also questionable: SVB’s news appeared just after the California-based crypto bank Silvergate collapsed. Source Fortune

We have alternatives that are low in correlation to traditional stock & bond portfolios. They are liquid and transparent. Minimums and fee structures vary and some are performance based only. Returns we can share are NET of Fees.

If you want to learn more, just let me know what works to learn more about your needs.

Schedule A Call Now

Futures trading is speculative and involves the potential loss of investment. Past results are not necessarily indicative of future results. Futures trading is not suitable for all investors.

Nell Sloane, Capital Trading Group, LLLP is not affiliated with nor do they endorse, sponsor, or recommend any product or service advertised herein, unless otherwise specifically noted.

CTG Daily Commentary is published by Capital Trading Group, LLLP and Nell Sloane is the editor of this publication. The information contained herein was taken from financial information sources deemed to be reliable and accurate at the time it was published, but changes in the marketplace may cause this information to become out dated and obsolete.

It should be noted that Capital Trading Group, LLLP nor Nell Sloane has verified the completeness of the information contained herein. Statements of opinion and recommendations, will be introduced as such, and generally reflect the judgment and opinions of Nell Sloane, these opinions may change at any time without written notice, and Capital Trading Group, LLLP assumes no duty or responsibility to update you regarding any changes. Market opinions contained herein are intended as general observations and are not intended as specific investment advice.

Any references to products offered by Capital Trading Group, LLLP are not a solicitation for any investment. Readers are urged to contact your account representative for more information about the unique risks associated with futures trading and we encourage you to review all disclosures before making any decision to invest. This electronic newsletter does not constitute an offer of sales of any securities. Nell Sloane, Capital Trading Group, LLP and their officers, directors, and/or employees may or may not have investments in markets or programs mentioned herein.