Stock bulls are somewhat relieved after relatively neutral remarks from Federal Reserve Chair Jerome Powell, as well as lower-than-expected job gains reported by ADP. Despite some recent weakness, stock indexes remain in record territory amid some already solid gains for the year so far.

The S&P 500 and Nasdaq are both up around +7% while the Dow is up +2.6%. During his first day of Congressional testimony yesterday, Fed Chair Powell’s remarks were mostly what Wall Street anticipated. Sticking to the Fed’s current script, Powell noted that inflation has come down substantially but policymakers want to see more data in order to be sure inflation is “moving sustainably toward +2%.”

Notably, Powell did not mention a recent rebound in monthly price increases that has prompted Wall Street to push forecasts for rate cuts to begin later in the year. Powell also might have given the clearest guidance yet on what, exactly, the Fed wants to see before cutting rates: “We’re not looking for better inflation readings than we’ve had. We’re just looking for more of them.”

Meaning inflation doesn’t necessarily need to slow down any further, it just needs to NOT heat up again. Powell testifies before the Senate Banking Committee today, which  is likely to just be a rehash of his House testimony. Expectations for Fed rate cuts have not really changed with traders placing the odds of rate cuts starting in June at around 58%, and most still expecting a total of three or four 25 basis cuts by the end of 2024. Bulls will likely be inclined to pull rate cut expectations forward again if official February jobs data comes in significantly weaker than economists have been forecasting.

ADP’s private payroll report yesterday showed +140,000 jobs added in February, slightly below the +150,000 expected and compared to a gain of +190,000 forecast for the official February

Employment Situation, which is out on Friday.  Bears are pointing to recent data that indicates consumers may be under more stress than most on Wall Street have assumed.

The latest edition of the Fed’s Beige Book yesterday noted a slowdown in consumer spending in recent weeks. The report also pointed to brewing margin pressures for businesses that are fining it “harder to pass through higher costs to their customers, who became increasingly sensitive to price changes.”

While warnings about the economy slipping into recession are still rare, more bears are raising the possibility of an earnings drought if businesses are unable to offset higher costs. Today, investors will be digesting Productivity & Costs and Consumer Credit. Key earnings today include ADM, Broadcom, Burlington, Costco, Kroger, and Marvell Technology. There will be lots of eyes on Marvell - it’s a chip company riding the AI wave that’s already climbed +40% this year, and nearly +98% over the last 12 months.

I'm just still a bit nervous about this whole "regional bank" thing. We've already seen three fail and or be rescued and now New York Community Bancorp is clearly on the ropes. There's still a ton of worry and concern form the bears that the regional banks still have way to much exposure to commercial real estate and the wave of notes that are coming due and scheduled to have rates reset could further rock the boat. When it comes to the banking world, where there's smoke there's most always some type of fire.

Powell Says Plummeting Office Rental Demand Could Take Years to Work Through: Powell, in congressional testimony Wednesday, said that rental demand at office buildings has fallen significantly and that it could remain lower for some time. It's a shock to the system, Powell said about the reeling office sector in the wake of the pandemic, while also saying it has been a risk the Fed has known about for some time. More broadly, regional banks have come under pressure since the collapse of Silicon Valley Bank nearly a year ago, with investors and regulators both stepping up scrutiny of their commercial real-estate exposure. Keep in mind, that there's still a massive wave of maturing commercial real-estate loans that are going to come due and reset at significantly higher rates. Source Market Watch

Ex-Google Employee Charged with Stealing AI Trade Secrets for China: A former Google software engineer, Linwei Ding, has been indicted on charges of stealing AI technology secrets from Google and then passing the information to two Chinese companies, the Department of Justice reported yesterday. The thefts of "over 500 confidential files containing AI trade secrets" are thought to have occurred at supercomputing data centers owned by Alphabet, Google's parent company. Google referred the case to the FBI after an internal investigation. Source Fox Business

US Average FICO Score Drops for First Time in Decade: The average FICO credit score fell to 717 in October from 718 in April, the first time since 2013 that the score has fallen, FICO said Wednesday. “High interest rates and persistent inflation may be starting to weigh on consumers, especially those already struggling to manage their finances,” Can Arkali, senior director of analytic science for FICO, said in a blog post. In October 2023, just over 18% of the population had a 30-day or worse past-due payment in the last year, up +4% compared to April 2023. Average credit utilization — the amount of available credit a borrower used — was 35% in October, up a percentage point from pre-pandemic 2019. The coming months will show whether the drop is an anomaly or an early warning about consumer repayment behavior. FICO also notes that as consumer confidence decreases, credit-seeking behavior is also decelerating, which may offset some of the effects of increased delinquencies and debt levels. New credit activity has slowed, with 44.4% of the population opening a new credit account in the past year, down from 45.5% in April 2023 and 47.2% as of October 2019.  Source Axios , Fico


Florida Again Trying to Discourage Bad Spring Breakers: The city of Miami Beach sent out a strong message to spring breakers this month: "We're breaking up with you." The Florida city released a new ad campaign recently in which it outlined its plans for stricter rules for tourists. The social media campaign comes a year after Miami Beach declared a state of emergency following two fatal shootings during spring break. It was the third year in a row that Miami Beach had to enact emergency measures to control disorderly crowds. Miami Beach officials said the city would implement curfews, bag checks, restricted beach access, DUI checkpoints and expensive parking fees. It also said it would increase law enforcement. Last year, one Miami Beach commissioner said police were “outnumbered by a lawless crowd that just can’t be controlled,” NBC News reported then. Hundreds of arrests were made and dozens of guns were confiscated during last year's spring break.  Source NBC

A Financial Crisis is Brewing in Uninsurable US Homes: Some 11 million people live in California’s high-risk wildfire zones, areas that include Los Angeles county, San Diego and the vineyards of Napa and Sonoma. Not long ago, they and homeowners in natural disaster regions around the US would have almost certainly had insurance through a big, national company like State Farm General Insurance Co., Allstate Corp. or Hartford Financial Services Group Inc. But a growing number of insurers are cutting their business in those areas, deterred by more intense and frequent natural disasters, plus state-imposed limits on how much they can charge. Homeowners in the riskiest places are now more likely to be covered by state-created, “last resort” insurance programs that provide protection where the private market won’t. Those plans have more than doubled their market share since 2018, and their liabilities crossed the $1 trillion threshold for the first time in 2022. The most climate-vulnerable states are the most exposed: As of now, Florida’s plan could suffer $525 billion in losses; In California, it’s at least $290 billion, up sixfold from 2018. But even as states have assumed more and more risk, they’ve largely dodged a fundamental question: How will they cover claims in the wake of a truly major catastrophe?  Most states haven’t thought this far ahead, or if they have, they’re not explicit about where the money will come from. Out of 36 residual insurance plans that offer coverage for natural catastrophes, 21 don’t explicitly detail how they’d pay deficits. States have turned these plans into “a magic hiding place to disappear risk that just gets too big for the private market.  Source Bloomberg


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.