Waiting on the Fed, Jobs, Powell on the Hill, Dimon, Moynihan, Trading Defense

Markets were more or less quiet on Monday. Sure there was an early run, partially inspired by  strength in shares of Apple (AAPL) after a positive initiation by Goldman Sachs over the weekend. Equity markets, the large-cap indexes specifically, eventually gave up most of those early gains, while equities broadly turned in a negative-looking session by the time that the closing bell had finally rung its last.

The markets wait. They wait for Fed Chair Jerome Powell, who will testify before the Senate Banking Committee this (Tuesday) morning and then before the House Financial Services Committee tomorrow (Wednesday).

Powell will be asked about and have to talk about monetary policy. Many of the questions asked will probably pertain to areas outside of the powers granted to the Federal Reserve Bank in the form of its twin mandate of best balancing full employment and price stability. Some committee members will try to score political points while casting blame. Others will attempt to cover up their own lack of intellectual depth in the subject matter and will try to land "zingers" on the Fed Chair.

The Fed Chair, for his part, will have to, once again, thread the needle between prepping a public still somewhat unprepared for what may be required as the Fed itself seems unable to get where it needs to be, and the central bank's ability to steer the economy around an economic downturn.

Powell will be pushed to better cut the pace of consumer-level inflation by some committee members, while others try to get him to commit to saving jobs. Remember, it was just three months ago, in December, that the FOMC's quarterly economic projections showed at the median, a Fed Funds Rate of 5.1% for 2023. The target range for that benchmark currently stands at 4.5% to 4.75%. In two weeks, that range will likely be increased to 4.75% to 5%, at least.

Back in December, the FOMC also projected (at the median) GDP growth for 2023 of 0.50% and an unemployment rate for the year of 4.6%. After Powell attempts to adjust expectations this week, as the FOMC will update all of those projections on March 22, the Bureau of Labor Statistics will go to the tape with its survey results for February labor markets on Friday. As these results come after a much stronger January than anyone saw coming, this is likely the event of the week, even more important than how well Powell navigates our legislative branch of government this week.

How important will this week's jobs data be? February CPI is due a week from today, so important "in the moment"... but really only important until the "next" big number. Keep in mind that the U.S. 2-Year Note went out on Monday at 4.89%, up from 4.09% in mid-January, so not all financial markets seem to be whistling their way past the graveyard.

Bankers Talk

Some of the U.S. banking industry's highest-profile leaders spoke publicly ahead of Powell's twin testimonies. JPMorgan Chase (JPM) CEO Jamie Dimon appeared on Bloomberg TV on Monday. Dimon said that what he worries about most is Russia's war in Ukraine. Dimon said, "It's oil, gas, the leadership of the world, and our relationship with China -- that is much more serious than the economic vibrations that we all have to deal with on a day-to-day basis." Dimon added, "This is probably the most serious geopolitical thing we've had to deal with since World War II."

Speaking specifically on U.S. economic matters, Dimon stated, "A mild recession is possible, a harder recession is possible. I think there's a good chance that inflation will come down, but not enough by the fourth quarter -- the Fed may actually have to do more."

Bank of America  (BAC)  CEO Brian Moynihan spoke on Tuesday morning in Sydney, Australia. Moynihan does expect a recession in the U.S., but not a very deep contraction in economic activity. Moynihan said, "Our base projection is for a recession to occur in the U.S. economy in the third quarter of 2023, occur through the fourth quarter of 2023 and into the first quarter of 2024." Moynihan qualified the depth of this coming recession, though: "In our view that is based on a corporate side or a commercial side slowdown, not a consumer led slowdown." Qualifying further, Monihan added, "I think you're going to see a slowdown which frankly a lot of people are not going to see that much of. It will be more of a technical recession than it will be a deep drop in the U.S."

I sure do hope he's right. In my experience, when employers slow down, so do those whom they normally employ. Even for those who remain gainfully employed, items like raises, bonuses and benefits will become more difficult to come by. Slowing corporate America without nearly simultaneously slowing the American consumer would be a pretty neat trick indeed.

Monday Blues

Equity markets were likely weaker than some folks might have realized on Monday. While the S&P 500 gained 0.07% and the Nasdaq Composite gave up 0.11% for the session, once one moved out past the broader indexes, the market was much sloppier.

On the economic growth side, the Dow Transports lost 0.92% for the day, while the Philadelphia Semiconductor Index lost 1.11%. Trading down in cap size, it only got uglier. The S&P MidCap 400 surrendered 1.23% on Monday as the Russell 2000 lost 1.46% and the the S&P SmallCap 600 took a beating of 2.26%.

Across the 11 S&P sector-select SPDR ETFs, there were five winners, five losers and one fund that closed unchanged. No single SPDR ETF among the 11 gained more than 0.48% on Monday. However, with Beijing forecasting a less-aggressive GDP target for the year than some expected, the Materials (XLB) sector was walloped for a daily loss of 1.62%.

Breadth was rather ugly. Losers beat winners by nearly 2 to 1 for names listed at both the New York Stock Exchange and the Nasdaq Market Site. Advancing volume took a 34% share of composite NYSE-listed trade and a 44.1% share of that same metric for Nasdaq listings as trading volume in the aggregate, contracted on a day-over-day basis for shares listed at both locales.

Put in plain English, there was some trading done on Monday, but portfolio managers for the most part, sat on their hands for the day.

Change of Venue

The Financial Times reported on Monday that Taiwan's President Tsai Ing-Wen had convinced U.S. Speaker of the House Kevin McCarthy to meet on U.S. soil rather than in Taiwan in order to avoid provoking any aggressive military response that might be made by Communist Chinese forces. The meeting will now take place in California.

A senior Taiwanese official is quoted at the FT as having provided Speaker McCrathy's team with "some intelligence about what the Chinese Communist party is recently up to and the kind of threats they pose." That individual added, "There might be policies even more irrational than in the past emanating from Beijing. If we can try to control this together, the risks it brings for everybody can be contained better."

From a U.S. perspective, the meeting still accomplishes the objective of demonstrating U.S. resolve in supporting the autonomy of the island while making it more difficult for Beijing to behave in a provocative manner.

Contract Award

On Monday, the Pratt & Whitney unit of Raytheon Technologies (RTX) announced that the firm had been awarded a $5.2B contract to support production of the 15th and 16th lots of F135 engines, with an option toward a 17th lot. These engines power all three variants of Lockheed Martin's (LMT) F-35 Lightning II fifth-generation fighter aircraft. Total contract value climbs to about $8B should the option for lot 17 be exercised.

The contract funds production of 278 F135 engines, or as many as 518 including that option. The contract also includes program management, engineering support, production support and tool supply. The Pratt & Whitney unit of Raytheon, as of the end of 2022, had already delivered more than 1,000 F135 jet engines.

Lockheed and Raytheon stock have held up better than other large defense contractors since November of 2022, as shares of both have really been basing since completing a move higher at that time. Both names have lately worked their way toward pivot. In my opinion, RTX needs $104 in order to break out, while LMT still needs $499.

Economics (All Times Eastern)

08:55 - Redbook (Weekly):Last 5.3% y/y.

10:00 - Wholesale Inventories (Jan-adv):Expecting -0.4% m/m, Last 0.1% m/m.

15:00 - Consumer Credit (Jan):Last $11.56B.

16:30 - API Oil Inventories (Weekly):Last +5.203M.

The Fed (All Times Eastern)

10:00 - Speaker: Federal Reserve Chair Jerome Powell.

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: DKS (2.89), SE (-0.55), THO (1.10)

After the Close: CASY (2.00), CRWD (0.43)

At the time of publication, Guilfoyle was long BAC, RTX, LMT and CRWD equity.