Don't Feel So Good | The Daily Peel | 3/17/22

Market Snapshot

Wow, JPow gave markets an absolute heart attack yesterday. Equities opened higher, plummeted when the Fed’s statement came out, crept up during JPow’s press conference, and screamed higher following. It was a hell of a day, with the Nasdaq ripping a massive 3.77%, the S&P gaining 2.24%, and the Dow rising 1.55%.

Let’s get into it.

Banana Bits

• Joey B signs a $1.5tn omnibus spending bill, including $13.6bn to homies in Ukraine.
• Russia continues its assault on Kyiv as European leaders stroll in for peace talks.
• Goddamnit, Pfizer wants to give us yet another booster. How many microchips does Bill Gates need?

• The E.U. gives Amazon the green light on their highly contended MGM purchase.
• “One-Third of tech companies that IPO’d in the last four years are trading below their last pre-IPO private round valuation,” according to Michael Batnick.
• Peter Schiff gave his best shot at the worst tweet of all time and got absolutely ripped apart for it.

Macro Monkey Says

JPow Speaks — We don’t feel so good, Mr. Stark. Yesterday, for the first time since Thanos wiped out half the universe back in 2018, the Federal Reserve did the monetary policy equivalent of that same thing. At 2 pm sharp yesterday, JPow and the FOMC raised rates. Can you believe it?

Well, you should believe it. Everyone and their mother saw this coming, with the main question centered around just how much rates would moon. Now, that question has been answered as the Federal Funds Rate has been raised from 0-0.25% to 0.25%-0.5%.

As expected, the decision was followed by JPow’s classically emotionless press conference. He was primarily grilled on inflation and inflation expectations, offering insight on how the FOMC is thinking about the inflationary environment but no specific details on actual actions. Powell went on to say that with all that uncertainty in mind, the FOMC gang “anticipates that ongoing increases in the target range for the federal funds rate will be appropriate.”

Market participants have already coined the term “Powell Pivot,” but this one seems like the real deal. JPow and his crew have shifted focus from fighting economic collapse in a pandemic to fighting an overheating economy with rampant inflation. That’s a full 180 for the $22tn ship that is the U.S. economy. Nice and easy, right?

Wrong. JPow said the economy is strong enough to withstand a less accommodative policy, but no one knows exactly what “less accommodative” means. Projections now anticipate a 25bps hike at every Fed meeting throughout 2022, implying a year-end FFR in the range of 1.75-2.0%. Even yesterday, St. Louis Fed President Bullard dissented in favor of a 50bps rate hike.

Long story short, rates have essentially reached base camp. They’re off the ground, but the real hike isn’t even close to starting yet. We’ll see you at the peak.

What's Ripe

Chinese Tech ($PDD, $JD, $BABA) — Wow, what a turnaround. Chinese tech stocks might be the only comeback story that can possibly match the Patriots in Super Bowl 51. Shares in the above names put up some of their best numbers ever for 1-day performance, with $PDD gaining 56.1%, $JD up 39.4%, and $BABA up 36.7%.

For once, they can thank the CCP. Chinese market regulators issued positive commentary on their dialogues with U.S. counterparts and, most importantly, showed support for foreign listing of their homegrown tech darlings. Specifically, Chinese regulators plan to take “concrete actions” to “stabilize markets.” What more could you want?

Starbucks ($SBUX) — Speaking of comebacks, guess who else is back? The man, the myth, the coffee shop legend Mr. Howard Schultz, founder and former CEO of Starbucks, who is returning to the (interim) CEO position as outgoing CEO Kevin Johnson announced his retirement. 

Schultz is a legend. Anyone who has taken a case-study-based business class knows this. So, it’s no wonder investors were hyped to have the OG back, pushing shares up 5.2% to celebrate.

What's Rotten

Lockheed Martin ($LMT) — Unlike most of us, Lockheed Martin loves war. So, unfortunately for them, they’re one of few entities that’s harmed by the positive developments around ending Putin’s war in Ukraine.

And that harm is exactly what happened yesterday. Lockheed fell 6.1% on both the above developments as well as the DoD’s reduction in F-35 purchases for this fiscal year. The DoD cut 33 jets but considering they’ve already ordered 2,400, while the rest of the world has ordered 900, that shouldn’t do too much damage.

Up over 26% YTD by yesterday’s close, it looks like there’s some profit-taking going on too. 

NortonLifeLock ($NLOK) — Turns out Norton doesn’t exactly have things as much on lock as we expected, especially not their acquisition plans.

That’s what largely drove yesterday’s 13.3% cliff dive. Norton, a leader in personal cybersecurity, agreed to purchase London-based rival Avast in an $8.6bn deal in hopes of creating a serious industry player.

But, in trying to purchase Avast, the British government kindly told Norton to avast as antitrust regulators seek time to approve the deal. Hey, as long as my data and literal identity are protected, it’s cool with me, if anyone cares.

Thought Banana

Peace out, War — From the Hundred Years War, lasting 116 years, to the 38-minute Anglo Zanzibar War of 1896, the timeline of a war can vary widely. From Honduras and El Salvador going to war over a football game to the Australian government declaring war on a literal bird, wars can be fought for weird reasons.

And while the reasons for Russia’s invasion of Ukraine remain at least not entirely clear, it looks like the timeline of this war will be on the shorter side (God I hope I don’t regret writing this). 

Yesterday, reports emerged of potential peace agreements getting closer and closer for the two nations. A supposedly 15-point plan has been negotiated, and according to parties privy to the negotiations, things seem to be going well. Basically, Russia would get a guarantee that Ukraine won’t join NATO or be host to any foreign military bases or weapons. Ukraine would still receive security support from Western nations, but the details are unclear.

As they say, the devil is in the details. It will be difficult to get Putin to agree to anything of the sort, especially after what he said yesterday, declaring, “We will never allow Ukraine to become a stronghold of aggressive actions against our country.” Kinda scary, but the simple fact is neither side will agree to anything that makes them look to their people as if they lost this conflict.

The situation seems like a classic lose-lose, so turning it into a win-win will likely take some kind of miracle. Still, oil went negative, so nothing can surprise us now.

Wise Investor Says

 “Men who can both be right and sit tight are uncommon.”  — Jesse Livermore

Happy Investing,

Patrick & The Daily Peel Team

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