Powell delivered what many bulls felt were less "hawkish" remarks compared to his remarks in front of the Senate on Tuesday. In particular, Powell stressed that the size of the Fed's next rate hike is not yet decided. Bulls take that to mean the Fed at its March 21-22 meeting will be considering upcoming data that may show the economy cooled off in February, including the February Employment Report on Friday (3/10) and the Consumer Price Index next Tuesday (3/14).
Keep in mind, most on Wall Street now expect a 50 basis-point hike in March, and 25 basis-point hikes in both May and June (there is no April meeting). Some are penciling another quarter-point hike for July as well, which would put the Fed's benchmark interest rate at a range between 5.50%-5.75%.
A little over one-third of traders see the Fed pushing rates to +6% this year. These expectations could dramatically change over the next several trading days, depending on how the numbers land. It's worth mentioning that ADP's private payroll report yesterday showed employers added +242,000 jobs in February, more than the +200,000 expected. That's also higher than what Wall Street expectations for the government's official jobs report on Friday, with consensus looking for a gain of 205,000-215,000.
Keep in mind, ADP's data often varies widely from the Labor Department. The firm showed just +106,000 jobs gained in January versus the Labor Department's estimate of +517,000.
Another report of interest released yesterday was the Job Openings and Labor Turnover Survey (JOLTS) which showed job openings moved lower to 10.6 million from 11.23 million prior. While the dip is a move in the right direction, the number is still far above the pre-pandemic level.
Think about this, there were still +5.1 million more job openings than unemployed workers in January. The all-time widest that gap has ever been was +6.1 million back in March 2022. And if we look back to February 2020, right before the pandemic, there were only +1.3 million more job openings than unemployed.
Bottom line, the Fed would like to see -3.2 million fewer job openings. To make that happen, they need to see companies slowing down their hiring efforts. Meaning the pace of hiring that companies are still doing or openings they are still trying to fill is inconsistent with a "cooling job market" and will not be considered good news by the Fed.
The one positive takeaway from the report, at least as far as Fed policy, was that layoffs increased by +16% to 1.7 million. Interestingly, that's a fairly average historical layoff number, but it is the highest we've seen in over two years.
Remember, it seemed like nobody was laying anyone off during covid, probably because employers were being incentivized by covid stimulus that was given to businesses.
There is really no significant economic data due out today.
Earnings of note today include BJ's Wholesale, The Gap, Oracle, Toro, and Ulta Beauty.
US Has a Shortfall of 6.5 Million Single-Family Homes: Due to a decade of under-building, the US finds itself with a shortfall of 6.5 million single-family homes, according to a new report released yesterday. Realtor.com looked at household formation, housing starts, and home sales, and found that given how many households were formed between 2012 and 2022, the US is short of 6.5 million single-family homes. But that gap diminishes somewhat if households opted to live in multi-family construction, which has boomed. Real estate insiders argue that when buyers return to the housing market, it won’t be easy to find affordable homes due to lack of new construction. In 2022, the U.S. saw 2.06 million household formations, the report said. That refers to a group of people living together. Household formation affects the economy, as it drives demand for housing, and further down the line, spending on household appliances and furniture. Between 2012 and 2022, there were 15.6 million households formed, Realtor.com said. Yet in this 10-year period, only 13.3 million housing units were started, and even fewer – 11.9 million – completed. In 2022, about 1 million single-family homes were “started,” or rather, construction began on these homes. That’s 10.6% fewer than in 2021, and 2023 is even slower. Source Realtor.com & MarketWatch
Spring Break Travel May Break the Bank This Year: Flying to the most popular destinations for spring getaways is costing travelers significantly more on average than before the pandemic. Warm-weather destinations are among those seeing the largest jump in prices compared with 2019. For round-trip tickets to Orlando from anywhere in the US between March and April 2023, the average price travelers paid was +31% higher than for the same period in 2019. Orlando ranked as the top destination for US travelers during those months. Other popular destinations are seeing even higher average ticket prices for US travelers this year, compared with 2019. Average ticket prices in March and April are up +51% for flights to Cancún, Mexico, and +41% for flights to Las Vegas. A company called "Airlines for America", who is an industry trade group is projecting that more than +158 million passengers will fly on US airlines in March and April, a record number for those months. Source WSJ
Interesting Read... 23 Years Ago Today "The Dot-Com Bubble Bursts" - The dot-com stock bubble hit its peak on this day in 2000 with the Nasdaq closing at an all-time high of 5,048.62. It also proved to be the last time the Nasdaq traded above +5,000 until we climbed back to that level in 2015. Think about that, it took +15 years to fully recover! It's crazy to think it took 15 years from 2000 to 2015 to gain +4,000 points when we recently added +10,000 points to the Nasdaq in just 18-months during the Covid rally. Crazy times... I should also note, most Wall Street market historians argue that the dot.com bubble burst when the Fed tightened its monetary policy which eventually started to constrain the flow of capital. The Nasdaq fell by more than -75% between March 2000 and October 2002. Ouch! So, who ended up holding the bag? Average investors! Over the course of the year 2000, as the stock market began its meltdown, individual investors continued to pour $260 billion into U.S. equity funds. This was up from the $150 billion invested in the market in 1998 and $176 billion invested in 1999. Every day people were the most aggressive investors in the dot-com bubble at the very moment the bubble was at its height — and at the moment the smart money was getting out. By 2002, 100 million individual investors had lost $5 trillion in the stock market. A Vanguard study showed that by the end of 2002, 70% of 401(k)s had lost at least one-fifth of their value; 45% had lost more than one-fifth. Could it happen again? There’s been a lot of talk as of late about how the American public — especially the middle and upper-middle classes — have become much more active participants in the stock market. I often worry about how this story ends. Source WSJ, Wiki
WWE in Talks with State Regulators to Legalize Betting on Scripted Match Results: WWE is in talks with state gambling regulators in Colorado and Michigan to legalize betting on high-profile matches, according to people familiar with the matter. WWE is working with the accounting firm EY to secure scripted match results in hopes it will convince regulators there’s no chance of results leaking to the public, said the people, who asked not to be named because the discussions are private. Accounting firms PwC and EY, also known as Ernst & Young, have historically worked with award shows, including the Academy Awards and the Emmys, to keep results a secret. WWE executives have cited Oscars betting as a template to convince regulators gambling on scripted matches is safe, the people said. Betting on the Academy Awards is already legal and available through some sports betting applications, including market leaders FanDuel and DraftKings, although most states don’t allow it. Still, while Academy Awards voting results are known by a select few before they’re announced publicly, they aren’t scripted by writers. Even if regulators allow gambling, betting companies would have to decide if they’re willing to place odds on WWE matches. Those discussions have yet to occur at betting firms, according to people familiar with the matter. Source CNBC
Crypto-Focused Bank Silvergate Capital to Wind Down: Silvergate Capital, one of the crypto market's top banks, is shutting down. The bank will repay all deposits and “is also considering how best to resolve claims and preserve the residual value of its assets," it said in a news release Wednesday. Silvergate caters to companies in the crypto business. It helped institutional investors move dollars in and out of crypto-trading platforms through its Silvergate Exchange Network, which it stopped operating last week. The bank’s implosion makes it one of the few non-crypto companies to go out of business as a result of the industry’s downturn. Silvergate's decline tracked the unraveling of the broader crypto industry. What once was a novel business strategy soured as crypto companies withdrew their deposits, bank regulators cracked down on lenders’ exposure to the sector, and investors grew wary of the approach. Silvergate reported a $1 billion loss for the fourth quarter as investors raced to withdraw more than $8 billion in deposits. Founded in 1988, Silvergate ventured into crypto in 2013. The bank had also operated a mortgage warehouse business, but announced in December that it would be winding down that division, citing the rising interest rate environment and reduction in mortgage volumes. Source Reuters
Restaurants Still Can't Recruit Enough Workers: Americans are rushing back to restaurants after staying away during the pandemic. To catch that demand, chains are opening thousands of new locations. It has the makings of a boom, except for one glaring problem: there aren’t enough workers. Three years after Covid hit the US, the $900 billion US foodservice industry still can’t recruit enough employees. It has boosted pay and benefits, but that hasn’t worked. Chains including Jack in the Box Inc. and Domino’s Pizza Inc. say the labor woes are hurting business. In a recent survey, more than 60% of establishments said they’re understaffed. Like much of the US labor market at the moment, the picture that official data paint of the restaurant industry can look contradictory. On one hand, foodservice employment levels are approaching where they were in early 2020 and the number of restaurants is still below pre-pandemic counts, implying there are plenty of workers to go round. Yet for every two job openings in foodservice, there’s only one unemployed person to potentially fill the gap. The strong employment numbers also don’t account for sales growth that’s fueling a need for extra workers. Source Bloomberg
US Faces Shortage of Life-Saving Asthma Drug Albuterol: A drug commonly used to treat asthma attacks is in short supply, increasing anxiety for patients who use it—and for pharmacies and health care facilities that provide it. Albuterol sulfate inhalation solution has been in short supply since last fall, according to the U.S. Food and Drug Administration. A major manufacturer, Akorn, shut down in February, throwing a major wrench in the supply chain, according to the American Society of Health-System Pharmacists, which tracks drug shortages. Albuterol is a bronchodilator that provides relief from asthma attacks by relaxing smooth muscles in the airways. But it’s also used to treat patients with respiratory illnesses like RSV, and chronic respiratory conditions like chronic obstructive pulmonary disease or COPD sometimes referred to as emphysema. The shortage is only of the liquid form, used in nebulizers. At the moment, albuterol inhalers aren’t in short supply. Source Fortune
How Many Russians Have Been Killed in Ukraine? Nearly 1,200 Russian soldiers were recently killed in a single day around Bakhmut, according to Mark Milley, America’s top general, in an interview with Politico. “That’s Iwo Jima,” he reflected, referring to a brutal 36-day Pacific battle during the second world war. The Center for Strategic and International Studies (csis), a think-tank in Washington, says that Russia is likely to have suffered 60,000 to 70,000 combat fatalities in the first year of its invasion, citing American and other Western officials, as well as public reports. The chart below depicts the central estimate in that range. Including those killed, wounded and missing, total casualty numbers swell to 200,000 to 250,000. For two weeks in late January and early February, as Russia intensified its attacks across eastern Ukraine, its casualties probably reached over 800 per day, killed and wounded, according to British defense intelligence. This level of carnage far exceeds what Russia has faced in any of its modern conflicts. It lost 95 to 185 soldiers per month in Chechnya between 1999 and 2009 and 130 to 145 soldiers per month in Afghanistan from 1979 to 1989. In Ukraine it has seen 5,000 to 5,800 military deaths (including mercenaries) per month. The number of Russian soldiers killed in the past year probably exceeds the death toll in every other Russian and Soviet conflict since 1945, combined. Its casualties are dwarfed only by the second world war, in which the Soviet Union lost more than 8m men. Source The Economist
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