Well folks, yesterday marked the end of 2022’s fifth FOMC meeting and with it came a 75bp hike which brought the target rate to 225-250bps - the S&P 500 rallied 2.6% on this news as it was in line with expectations and following in suit with Fed’s last policy rate decision. Read on for your daily source of market inspiration and remember that a foundational economic truth is that the discount rate is an indicator of the base RoR of opportunities to be had in markets.
"Never let the future disturb you. You will meet it, if you have to, with the same weapons of reason which today arm you against the present." - Marcus Aurelius
The S&P 500 has finally gotten over the hump and put some breathing space between itself and that key 4,000-point support level following its 2.62% run on yesterday’s rate hike news being in line with forecasts. This has caused volatility to minorly subside into this morning’s trading, with the $VIX still hovering in the low 20s even as futures markets experienced a minor pullback today of around 25bps. The tech-heavy Nasdaq isn’t handling the rate hike as well as other markets given its 75bp futures drop this morning; the Nasdaq 100 is still down 24% YTD, outpacing the S&P 500 by 8 percent despite the Nasdaq’s 13% rally over the S&P’s 10%!
After yesterday’s hike brought the target policy rate to 225 to 250bps, the market is pricing in a 71% probability of a 50bp hike and a 29% probability of another 75bps during the next FOMC meeting on September 20th to 21st → A dominant factor affecting this will be how inflation responds over the next two months when it is reported on August 10th and September 13th. Last, it’s worth noting that we’re approaching the ‘market neutral’ rate that the Fed has been eyeing and should it continue hiking past this range over the next 2-3 quarters it will become even more likely that equities take a nosedive on a slow recession really setting in.
Long: Chevron Corporation (CVX-NYSE) | Timeline: 2 days
Much like our call on Exxon Mobil ($XOM) we’re expecting this oil and gas giant to report stellar earnings based on the large increase in crack spreads, and gasoline costs throughout the second quarter. Crack spreads are a metric designed to display differences between finished products, in this case, gas and heating oil, and a raw commodity, in this case, crude oil.
This spread helps to illuminate where value is being added within the oil supply chain, and is a great indicator for showing refinery premiums. Historically, this spread has hovered between $25 and $15, however over the past quarter it has hovered between the low $40’s and low $60’s. As Chevron is one of the largest refinery operators in the US, this price increase is likely to benefit the top and bottom lines of the company. In terms of the technicals, while the company has been trading below its 50-day MA for just over a month, the stock bounced off the 200-day roughly two weeks ago, showing strength. Additionally, while MACD currently sits at -2.27, this is a result of a weeklong upwards trend that shows little sign of slowing down anytime soon. Much like our XOM trade idea, we wouldn’t recommend holding this equity over the weekend due to the immense volatility, and instability within international energy markets.
Long: Kimco Realty Corporation (KIM-NYSE) | Timeline: 3 days
Kimco Realty Corporation, a retail REIT that is one of North America's largest publicly traded owners and operators of open-air, grocery-anchored shopping centers and mixed-use assets have reported exceptional results this morning, beating earnings and revenue by 30.39% and 1.08%, respectively. CEO Conor Flynn also did not fail to mention the stability of their portfolio as the company’s “open-air, grocery-anchored portfolio is facilitating higher retention, driving strong new tenant demand, and maintaining solid pricing power, even in the current inflationary environment, all of which should lead to greater free cashflow and visible earnings growth” (Source). Taking a look at the chart, Kimco took a hit from inflationary pressure after stable growth along the 50-day MA, a key support or resistance level for most stocks. However, as the feds have started to raise rates to tackle this, Kimco was quick to turn around, playing a double bottom and crossing back over its 50-day MA as a key resistance level - and with this earnings announcement, bulls should take charge and drive the stock back to its pre-established uptrend.
Chart of the Day - Value of Russian-Origin Imports to China Since 1994