Good Friday Am,
The ten-year has plunged below 3.37 and now rests where we thought it would rest, at 3.35%.
This marks a 100% reversal from the previous high to the previous low. While nothing in the market is linear, this rally has room to continue. Just remember even the strongest of moves do not move in a straight line. There will be pullbacks.
From a news standpoint, this morning the Durable Goods numbers were released, and they were crushed! I have long said that when families pull back on their larger ticket items, the economy will slip, which could leave to a Fed Pivot sooner rather than later. The banking industry is still on the ropes, despite what Powell said. Should we see more signs of weakness in that sector, rates will continue to fall. The markets are highly emotional and volatile which means any good news will cause a bigger than normal move, so please be careful!
Continuing with bond market news.
The markets are signaling the Federal Reserve is wrong when it talks about the prospect for further interest-rate hikes. Jeffrey Gundlach a bond guru among the latest to predict cuts instead as the risk of recession grows. Gundlach, DoubleLine Capital’s chief investment officer, sees the Fed cutting rates “substantially” soon, according to posts on Twitter. He also warned of “red alert recession signals” emanating from the US yield curve.
Technology certainly pays or the right technology that is… AI chatbot startup with no revenue is now a $1 billion unicorn. Character.AI, a Silicon Valley company started by two former Google employees, said Thursday it raised $150 million in a new funding round led by well-known venture-capital firm Andreessen Horowitz. The new investment values Character.AI at $1 billion.
And last (despite the news mostly in our favor, I am glad we will move into next week and start looking ahead and no longer recapping what has already happened), from Bloomberg, an interesting piece on the Fed, on banking, and the Fed on banking (and credit tightening):
A fun detail of the past two weeks: the banking system seized during the Federal Reserve’s blackout period ahead of its March meeting. On Wednesday, the silence finally broke.
“Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain,” the statement released at 2pm Eastern read.
Fed chief Jerome Powell elaborated about 30 minutes later in the press conference:
“Such a tightening and financial conditions would work in the same direction as rate tightening in principle. As a matter of fact, you can think of it as being the equivalent of a rate hike. Or perhaps more than that, of course, it’s not possible to make that assessment today with any precision whatsoever.”
Even if the contagion among US banks is truly contained, the lasting damage could be psychological. Banks may prioritize shoring up their finances over lending, fueling a credit crunch that could finally help stamp out stubbornly high inflation.
That would be good for central bankers, bad for consumers and businesses, and a potential return to the pandemic playbook for stock investors: buy big companies with stable cash flows and fortress balance sheets.
“Our general view is that credit availability is going to be coming down and we see some of the internals of the stock market confirming that. Small-, mid-cap indices are underperforming, which are obviously the most susceptible to that kind of a constraint on capital availability,” Morgan Stanley’s Michael Wilson told Romaine Bostick and me on Bloomberg Television. “The large-caps that have stability in earnings, clean balance sheets, aren’t going to need capital anytime soon.”
Please remain safe and stay healthy, enjoy the weekend, and first, make today great!