Fade the Fed anyone? Stock futures are headed south, following a big Wall Street rally stemming from perceptions Federal Reserve Chair Jerome Powell and co. may be less hawkish than markets think.
A short-lived rally won’t be a huge surprise to some. After all, we’ve got 99 problems out there that aren’t exactly in the Fed’s control — supply shortages and rising costs for companies, a continuing war in Ukraine, COVID-19 in China, etc.
Onto our call of the day from the founder of LaDucTrading.com, Samantha LaDuc, who specializes in timing major market inflections. She has been cautious on stocks for a while, and sees a 3,800 finish for the S&P 500 SPX, +2.99% this year amid tech floundering and continued growth-to-value rotation.
One of her biggest calls sees crude CL00, 1.56% reaching $160 by summer and $260 within a year, which LaDuc laid out in an interview with MarketWatch on Tuesday. It is one of the few inflation hedges out there, she said.
And a European embargo of Russian oil — the European Union proposed a ban on Wednesday to kick in within six months — will result in spiking oil, bond yields and the U.S. dollar, which will crush U.S. equities and emerging markets, said LaDuc.
As for her track record, LaDuc, who has been an active trader and investor since 2008, predicted in summer 2020 that bonds were done rising, inflation would prove sticky, and energy would outperform tech in 2021. And we have seen all of the above.
“2022 will set the stage for problems that will test our new traders and our old 40-year long macro frameworks. The Fed Put has moved, and since 2013 taper tantrum, I would wager it sits about 20% below current market prices,” she said. That “Put” refers to market and investor belief that the Fed will step in to support stock markets.
“Basically an accommodative Fed reduces volatility. A tightening Fed, by definition, triggers it. With that, value should lose less than growth at the very least if not straight-out outperform,” she said.
But stocks may be the least most important market for investors to watch right now, she said.
“Currently, the yen USDJPY, 0.61% and yuan USDCNY, 0.21% and euro USDEUR, 0.65% are in a race to the bottom. Emerging market panic on higher U.S. yields and tightening Fed is where we should focus our macro lens,” she said. And forex troubles are already seeping into U.S. equity volatility, she said.
What markets are failing to price in right now is higher oil, higher dollar and higher bond yields. So stock markets fall as that “narrative catches up, and then we can stabilize into the end of the year,” said LaDuc. That narrative catches up when “investors start to really question the Fed’s ability to control inflation. That’s when the long end of the curve will really come on.”
And while many on Wall Street see inflation moving lower over the next 12 to 18 months, but she is on the other side of that trade, which explains her belief that oil will keep climbing.
As for that post-Fed rally that may already be over? LaDuc said she doesn’t “see a reason to believe either inflation is under control or the Fed can control it. I believe the bond market has already telegraphed this and oil will make sure everyone listens soon enough.”
Post-Fed, the focus will turn to Friday’s nonfarm payroll data, and ahead of that, data is showing weekly jobless claims data rose by slightly more than expected. Meanwhlile, unit labor costs jumped 11.6% and a productivity decline of 7.5% was the biggest since 1947.
Tesla TSLA, +4.77% CEO Elon Musk says he has received $7 billion in equity financing for his proposed Twitter TWTR, +0.39% acquisition from outside investors. Twitter shares are rising on that news. Also Saudi Arabian investor Prince Alwaleed bin Talal, who previously dismissed Musk’s Twitter bid, plans to keep his 35 million share stake.
ConocoPhillips COP, +4.98% reported a profit beat, Cardinal Health CAH, +2.89% is falling on an earnings miss, with Shopify shares SHOP, +4.36% down for the same reason. ShakeShack SHAK, +2.18%, GoPro GPRO, +1.62% and SolarWinds SWI, +1.95% after the close.
Late Wednesday, EV-maker Fisker FSR, +3.84% reported a 50% jump in orders, but shares slipped on a slightly bigger loss. Upbeat results are boosting Tripadvisor TRIP, -0.97% and Booking Holdings BKNG, -0.12% is climbing on a strong summer travel forecast, while Etsy ETSY, +8.75% stock is down as executives guided for a downturn.
Tons of Chinese companies have been added to a list of those facing expulsion from U.S. exchanges over failure to comply to U.S. auditing standards. JD.com JD, +1.62%, Pinduodou PDD, +3.28% and Bilibili BILI, +2.91% are among new additions.
Elsewhere on the central bank front, the Bank of England lifted rates to the highest in 13 years and predicted 10% inflation this year, with the pound GBPUSD, -1.99% getting shredded. Brazil hiked rates 100 basis points, and Norway held steady but hinted of a June hike to come.
China’s Caixin services purchasing managers index hit its lowest level in more than two years, as COVID-19 containment efforts hit home.
Stock futures ES00, -0.73% YM00, -0.54% NQ00, -0.97% are down, with bond yields TMUBMUSD10Y, 2.956% TMUBMUSD02Y, 2.679% rebounding after Wednesday’s post-Fed tumble. Oil prices CL00, 1.48% BRN00, 1.73% are climbing as OPEC + reportedly agreed to hike production 432,000 barrels a day as expected. Gold GC00, 2.08% and silver SI00, 3.87% are both surging. Back from a holiday, China stocks 000300, -0.15% led a mostly higher Asian session, with European stocks SXXP, 1.00% also up. The dollar DXY, 0.72% is up, notably against the pound.
These were the top-searched tickers on MarketWatch as of 6 a.m. Eastern Time:
|AMC, +1.35%||AMC Entertainment|
|AMD, +9.10%||Advanced Micro Devices|
|HYMC, -4.11%||Hycroft Mining|
Historic Jamestown could soon be history.
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SOURCE: Market watch