Operation Major Blockade, Powell's Last Stand, UAE's OPEC Exit

End of an era? Or end of an error? I won't go there. Not today, at least. The mistakes have been obvious and have come often, but we could probably say that about any Fed Chair or anyone serving in a position of leadership under a proverbial microscope. This afternoon, the Federal Reserve bank's Federal Open Market Committee will conclude what has been a two-day policy meeting with an official statement on monetary policy. A half hour later, Fed Chair Jerome Powell will hold what will likely be the final post-policy decision press conference of his tenure at the nation's central bank.

No change is expected to be made to short-term interest rates. Fed Fund Futures are pricing in a 100% probability that the target range for the Fed Funds Rate is left right where it is at 3.5% to 3.75%. The fact is that futures markets are quite unsure at this time where short-term rates will be or where economic conditions will push rates going forward. Those markets, currently, are not pricing in any change in interest rates whatsoever until December, not of this year, but of 2027.

Yes, that is despite the fact that Kevin Warsh will likely head the Fed by mid-May. The next scheduled FOMC policy decision is not set until June 17, so Warsh, who Pres. Trump has nominated to replace Powell at the top, will have some time to get settled in his new position. Oddly enough, Warsh is a former member of the Fed's Board of Governors and Powell will have the option of continuing on as a member of the Board, just not as its leader.

Powell's term as Fed Chair will run its course on May 15, but his term as one of the Fed's Governors will run into January 2028. Should he resign from the Board once removed as Chair, that would allow the president to nominate someone new to the Board, which he may or may not be willing to do.

Though a registered Republican, Powell and the president would never be taken as political allies nor be seen as like-minded when it comes to policy. At 73 years of age, Powell may want to retire from the turmoil that surrounds serving at the Federal Reserve. He may want to write a book and do the public speaking circuit. If interested, I am sure that those options could prove lucrative. If his interests are political in nature or if he just wants to continue to serve, he may stick around. Powell has not made his plans public.

Turn The Page

But your thoughts will soon be wanderin'

The way they always do
When you're ridin' sixteen hours

And there's nothin' much to do
And you don't feel much like ridin'

You just wish the trip was through

Here I am
On the road again
There I am
On the stage
Here I go
Playin' star again
There I go
Turn the page

- Bob Seger (1973)

Buckle Up: Blockade In Motion

The Wall Street Journal is reporting that "President Trump has instructed aides to prepare for an extended blockade of Iran." Bloomberg News is reporting that after the president had claimed on Tuesday that Iran was in a "state of collapse," the U.S. is signaling that it will "stick with a naval blockade of Iranian ports."

Treasury Sec. Scott Bessent has referred to the blockade as the administration's "maximum pressure campaign," as it has forced inflation within Iran to accelerate while also forcing Iran to approach an inability to store crude oil as that nation cannot export the lifeblood of its economy. It is known that Iran is putting oil wherever it can to include old shipping vessels that have been retired and are of unknown serviceability.

Should Iran run out of storage space for its crude and be forced to shut down production, the system may never fully recover. Oil wells are not like switches that can be turned on and off. The damage done when shutting a well down can be irreversible. Estimates have Iran running completely out of storage as soon as May 11. Hence, the administration's decision to force the issue with the blockade, until Iran concedes on nuclear weaponry makes more sense than simply taking out public utilities, which would harm the civilian population kinetically.

End of an Era, Part 2

On Tuesday, the United Arab Emirates, commonly known as the UAE, made what seemed like an abrupt decision to leave OPEC at the end of the week. The UAE likely feels that it needs to bring more crude to market to drive revenue generation than OPEC and OPEC+ quotas currently allow. This could prove very helpful at a time when the closure of the Strait of Hormuz has forced market prices for crude oil and refined gasoline sharply higher.

There is almost no scenario where a weaker OPEC does not translate into reduced energy prices. With the UAE leaving OPEC (who will be next?) and the U.S. in control over Venezuela's output in addition to being the world's largest producer itself, the positive setup for a more favorable (for U.S. consumers) energy market is becoming crystal clear.

Tuesday's Markets

Traders took some profits in key areas ahead of the Fed, ahead of this morning's report on March Durable Goods Orders and ahead of tonight's spate of high-tech earnings releases. For those that may have forgotten, Amazon  (AMZN) , Microsoft  (MSFT) , Alphabet  (GOOGL)  and Meta Platforms  (META)  will all go to the tape this evening.

For the regular session on Tuesday, the Nasdaq Composite gave up 0.9% as the S&P 500 backed up 0.49%. Markets were pressured by weakness across tech as the Philadelphia Semiconductor Index was hit for a loss of 3.58%. That index has now posted two-straight losing sessions after what had been an incredible 18-day winning streak. Arm Holdings  (ARM)  led the losers there, but strong performances across the memory space overnight could reverse this. The small caps struggled on Tuesday as well.

Related: The Hurdle Is High for Big Tech Earnings and the Fed

Breadth

Six of the 11 S&P SPDR ETFs closed out the Tuesday session in the green, led by Energy  (XLE) , which sounds OK. It wasn't. The defensive sectors took places two through five as the cyclicals and growth sectors all closed in the red. When the defensives outperform the broader market, it often signals either profit-taking, which we know we have had some, or fear. With the Fed this afternoon and a financial verdict on big tech set for this evening, that makes some sense.

Losers beat winners at the NYSE on Tuesday by a four-to-three margin and by a rough seven-to-four at the Nasdaq. Advancing volume took a 45.7% share of composite NYSE-listed activity and just a 36.2% share of composite Nasdaq-listed trade. The lack of volume rendered the Tuesday session close to technically meaningless. While aggregate trade across the membership of the NYSE did rise by 2.5% on a day-over-day basis, the trading volume across the membership of the S&P 500 has not breached its own 50-day simple moving average since April 17. Volume across Nasdaq-listings contracted by 8.4% day over day.

Stay Nimble

Big day ahead, kids. It's going to start slow. Things will heat up during the Powell press conference, but I'm not sure by just how much. The humans know that Powell is a lame duck, but I am not sure how the high-speed, keyword-reading, AI-infused algorithmic traders will react to his words.

Then, the big tech firms will report. How those four firms perform overnight will likely be everything to you and I for the rest of the week. So, I want everyone in full battle rattle with a gas mask on the hip, two sources of water, a couple of days' worth of rations and clean socks out on the sidewalk before I see the sun. When I say move, you will move. Move.

Economics 

(All Times Eastern)

07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 6.35%.

07:00 - MBA Mortgage Applications (Weekly): Last 7.9% w/w.

08:30 - Housing Starts (Feb & Mar): Last 1.487M SAAR.

08:30 - Building Permits (Feb & Mar): Last 1.386M SAAR.

08:30 - Durable Goods Orders (Mar): Expecting 0.5% m/m, Last -1.4% m/m.

08:30 - ex-Transportation (Mar): Expecting 0.4% m/m, Last 0.8% m/m.

08:30 - ex-Defense (Mar): Expecting 0.7% m/m, Last -1.2% m/m.

08:30 - Core Capital Goods (Mar): Expecting 0.5% m/m, Last 0.6% m/m.

08:30 - Wholesale Inventories (Mar-adv): Expecting 0.3% m/m, Last 0.8% m/m.

08:30 - Goods Trade Balance (Mar-adv): Last $-83.5B.

10:30 - Oil Inventories (Weekly): Last +1.925M.

10:30 - Gasoline Stocks (Weekly): Last -4.57M.

The Fed

(All Times Eastern)

2:00 - FOMC Policy Decision.

2:30 - FOMC Press Conference.

Today's Earnings Highlights 

(Consensus EPS Expectations)

Before the Open:  (ABBV)  (2.67),  (CAR)  (-7.05),  (GD)  (3.69),  (SMG)  (4.01),  (SOFI)  (.12)

After the Close:  (AMZN)  (1.65),  (CMG)  (.24),  (GOOGL)  (2.62),  (KLAC)  (9.15),  (META)  (6.79),  (MSFT)  (4.06),  (QCOM)  (2.56)

At the time of publication, Guilfoyle was long SOFI, AMZN equity.