Expectations of a fifty-basis point Fed rate hike were pretty well baked into the markets…until yesterday when Fed Boss Powell attended a debate involving a number of central bank heads.

While no actual declarations were made – these people know how to leave themselves wiggle room – the general reaction to the debate, and specifically to Powell’s comments, was that the 50-bps hike was going the way of the Dodo and the new expectation was 75. Indeed, traders of fed funds futures have priced in a 94% chance that the Federal Reserve will deliver a 75 basis point rate hike in June, up from 70% on Thursday and 28% a week ago, according to the CME FedWatch Tool. Additionally, sentiment rose that the Fed may trim, or remove, its bond-buying program sooner than had been thought. How quickly things can change. The pessimist in me cautions that in the middle of every silver lining lies a very dark cloud. One such cloud is Netflix. The online streaming giant reported a large drop in subscribers this week and subsequently an even larger drop in market cap – around 37%. CNN’s new owner Warner Media Discovery, announced it was shutting down the barely launched CNN+ due to lack of subscriber support. Contagion now affecting other big-time internet / IT plays such as Google, Facebook (Meta) Amazon, Disney, etc. We think some of this is quite over-done and we will be watching with great interest next week as a slew of companies continue to report earnings.

Also on our office radar are some interesting things on the international front. While nearly all of the world’s central bankers are pushing rates upward, Japan is going the other way: it announced that its program of quantitative easing will continue and may even be expanded. The likely reason is that Japan is more concerned with deflation than inflation.

Germany is struggling with finding a policy of energy imports that will pressure Moscow but will also appease its fellow EU members. So, add that to the world energy mess that already has traders on the edge of their seats. Meanwhile, France will have a runoff presidential election this Sunday. Current president Emmanuel Macron is favored to win although it should be noted that his opponent, “Far-Right” candidate Marine Le Pen, is performing better in polling than she has in the past. The European markets will likely be pleased with a Macron win.

And one other tidbit: Deutsche Bank (US) reports that, for the first time in 30 years, Americans are holding more cash than debt. Surprising.

Ron’s Market Minute — So Many Issues, So Little Time

Worry, worry, worry! That is pretty much the bottom line in the bearish case for markets today.

Whether it’s inflation, the Fed, shortages, supply chain issues, earnings, economic growth or Putin’s horrific attacks, there seems to be no end of things for investors to stew about. This often is reason enough to see the glass as half-empty.

Yet, on the other hand, the optimists with horns have refused to give up the ghost. The speculative growth areas have truly been smoked BUT the S&P 500 is only down about 8% year-to-date. So, although the tech names have (mostly) experienced a bear market, the main market that most people study is in a ‘normal’ correction.

Seems that I have mentioned (perhaps too often) that such a pullback about once a year is pretty much the norm. So, seems that things aren’t too bad- given the headline-induced handwringing that’s taken place this year, so far.

And in truth, the S&P is currently stuck in a rangebound mode. Also, not the worst.

I will call it a rangebound market. And it’s in the process of trying to figure things out. As to how high rates will go, or how long the current sky-high inflation will be with us. Or how long the Russian terror will last, or how far the Fed is planning to go. OR more importantly, how will all of the above impact growth- and earnings.

Yes, I know I’ve said a time or twenty, the market can live with just about anything; given enough time and the data needed to create a likely scenario. But at THIS time, the outcome of the many issues above is not certain. (Not even close!)

But enough. I think you get the point. There are a LOT of concerns for markets to deal with now.  our take is that there is a tug-of-war playing out in the major indices, and this could last awhile.

Or put another way, we think stocks are going to spend a fair amount of time here trying to figure things out

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite D406A
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk
www.denkinvest.com

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