Don’t Fight The Fed

Key Takeaways

• Fed Decision And Outlook
• Is Housing Slowdown A Sign
• More Layoffs In Tech

It’s been a very quiet couple days for stocks as investors await today’s Fed decision. On Tuesday, the S&P 500 and Nasdaq Composite each gained around 1.5%. Volume has been on the lighter side, but I expect that to change by the end of today.

The two day Federal Open Market Committee (FOMC) meeting concludes this afternoon and it’s widely expected the Fed will raise rates a quarter point. However, much like I’ve discussed with respect to earnings, I don’t think today’s result will be the story as much as I think what Jerome Powell says in his post meeting press conference will be the focus of attention. Given the crisis in the banking sector since the last Fed meeting, I’m very curious to hear if his view on monetary policy has shifted. In the meantime, other anecdotal signs show the economy may be slowing some.

On Tuesday, data on home sales showed a slowdown. Existing home sales, which make up the bulk of the housing market, slowed 0.2% in February. That was the first contraction we’ve seen in the housing market since 2012. At the same time, median prices have dropped 12% since their June highs. I think what we may be happening here is a combination of higher interest rates having their intended effect as well as, the number of large scale layoffs contributing to decreasing demand.

As I’ve talked about before, the role housing plays in the economy is significant. If home values are rising and demand is strong, home owners are more inclined to spend money and take out lines of credit against their home. However, if values stagnate and sales slow, it is likely to have a ripple effect on consumer spending. Right now, we’re headed into the busiest season of the year for home sales and it will be worth watching to see how the housing market fairs.

Elsewhere, Nike announced earnings after the close Tuesday. The company beat on both revenue and earnings, but said they would be taking a cautious approach given uncertainty about the economy. In premarket, shares of Nike are down around 1%.

Amazon
AMZN
announced they will be cutting an additional 9,000 jobs. That news comes after the company announced back in November they would be letting go of 18,000 workers. This most recent round of cuts will take place in advertising, human resources, at Twitch and perhaps most interesting, their cloud computing unit. Both Microsoft
MSFT
and Amazon reported a slowing in their respective cloud computing divisions last quarter. Those units have been drivers of growth in the past several years, therefore, these layoffs could portend a slowing demand in infrastructure investment by companies.

Marvel Technology also announced layoffs. The chip maker will let go of 4% of their workforce because of slowing demand. This too is a furthering of an existing narrative we’ve seen recently. Large investments in computers during Covid have since slowed, taking demand down. If you begin triangulating points in the tech sector, between slowing chip demand and a slowdown in cloud computing, you get the sense that perhaps the economy is beginning to slow. What still remains to be seen; however, is if we can achieve that soft landing.

Looking ahead to today, I expect quiet trading ahead of the Fed announcement and their outlook. Lately, markets have been essentially shrugging off the threat of higher rates. But a battle between the market and the Fed is a lot like playing Scrabble with your parents, no matter how certain you might be you’re finally going to win, your parents seem to always come away with some crazy triple word score to seal the victory. Hence the expression, “don’t fight the Fed.” As always, I would stick with your investing plan and objectives.

tastytrade, Inc. commentary for educational purposes only.