Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Wednesday, May 1. Happy May Day. Happy Fed Day. The Bottom Line segment of today’s podcast starts at (4:11) for listeners who want to skip ahead. Be sure to check out the brand new ‘One Year Ago Today’ segment at the bottom of this page.
State of Play
Stocks and bonds sold off yesterday for no reason that was immediately apparent. Then there were some bad earnings after the close with AMD (AMD 0.00%↑), SuperMicro (SMCI 0.00%↑), and Starbucks (SBUX 0.00%↑) producing disappointing numbers and dropping overnight. Amazon (AMZN 0.00%↑) was positive though. As we look at our board of indicators at 0635 we’re looking at more risk off ahead of earnings and the Fed:
Stock index futures are pointing to a lower open with tech seeing the worst of it. The Nasdaq is down 0.8% with S&P 500 futures down 0.5%;
Cryptos are getting beat up with Bitcoin down 7% to trade around $57,500;
Commodities are dropping as well. WTI crude oil is down 1.5% to trade below $81/barrel. Copper is down 0.6%;
Bonds are holding steady for now. The 2-year yields 5.04%, the 10-year 4.70%.
Earnings
Pfizer (PFE 0.00%↑), Mastercard (MA 0.00%↑), CVS Health (CVS 0.00%↑), Norwegian Cruise Lines (NCLH 0.00%↑), Wingstop (WING 0.00%↑), Kraft Heinz (KHC 0.00%↑), Estee Lauder (EL 0.00%↑), and New York Community Bancorp (NYCB 0.00%↑) are all out before the open at 0930.
Three (3) of these are holdings in The Contrarian’s portfolio. Only one (1) is not underwater. But only one (1) is a legitimate concern and that happens to be the smallest position. Details in the podcast.
After the close we’ll hear from Qualcomm (QCOM 0.00%↑), Devon Energy (DVN 0.00%↑), Carvana (CVNA 0.00%↑), and Etsy (ETSY 0.00%↑), among others.
The Fed
The Federal Open Market Committee announces its interest rate decision at 1400. The Fed is all but guaranteed to stand pat with its key interest rate, which means investors will focus on details in the policy statement and of course Jay Powell’s press conference that begins at 1430.
The Bottom Line©️
Suddenly things appear to have taken a turn for the worse. Again it wasn’t immediately clear what caused the reversal yesterday. It may have been softer-than-anticipated consumer confidence figures. Judging by bonds, inflation fears are still out there as well. Whatever the cause, we’re now staring down the barrel of a higher-for-longer Fed.
It’s hard to see how any bad news isn’t already priced in here however. Powell himself has already said the Fed can’t cut rates yet and Fed fund futures are also wise to this, with rate cuts not looking likely until November (four meetings after today’s). It hasn’t been a secret that lower inflation is necessary for the Fed to be able to cut, so a little bizarre to see the market react now — if that is indeed what the market is even reacting to.
The consumer picture, meanwhile, is suddenly not so rosy judging by Starbucks and McDonald’s (MCD 0.00%↑) earnings yesterday. Starbucks especially is a pretty good gauge of consumer discretionary spending. A lot of the damage was in China, but US comps were down too. SBUX is down 13% in the pre-market at the time of this writing. The Contrarian is a holder of this stock and may look to buy the dip here…
One Year Ago Today…
First Republic Bank officially entered receivership, becoming the latest in a series of bank failures. This domino drop had The Contrarian concerned, as he wondered aloud whether it was too late to buy puts on the Regional Bank ETF (KRE 0.00%↑). (Daily Contrarian, May 1, 2023).
…and what happened
The KRE would eventually recover and until the start of this year was looking like a great trade. Since then things have soured a bit. The KRE has underperformed the S&P 500 over the last 12 months, as illustrated below:
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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Prospects of a 'Higher for Longer' Fed…