S&P 500 (SPY) Tries To Gain More Ground Despite Powell’s Comments

Key Insights

  • Hawkish commentary from Fed Chair Powell put some pressure on leading tech stocks. 
  • Healthcare and financial stocks enjoy strong support today. 
  • S&P 500 needs to settle above 4015 to continue its rebound.

S&P 500 Tries To Continue Its Rebound

S&P 500 is swinging between gains and losses today as leading tech stocks have once again found themselves under pressure. Apple, Alphabet, Amazon are down by about 1%.

Today, traders focused on the hawkish comments from Fed Chair Jerome Powell, who highlighted the importance of Fed’s fight against inflation. Treasury yields moved higher, which was bearish for growth stocks and put some pressure on S&P 500.

At the same time, it should be noted that demand for stocks is visible in the healthcare and financial segments. For example, big banks like JP Morgan, Citigroup, Morgan Stanley are up by about 2% today.

S&P 500

S&P 500 failed to settle above the 4000 level and pulled back. Currently, S&P 500 has settled between the support at 3950 and the resistance at 3980. In case S&P 500 declines below the 3950 level, it will gain additional downside momentum and move towards the next support level at 3915.

On the upside, S&P 500 must settle above 4015 to have a chance to gain sustainable upside momentum. A move above 4015 will open the way to the test of the next resistance level at the 20 EMA at 4035.

Snap Rallies As Memo Highlights Growth Ambitions

Snap is up by more than 7% today as traders react to the internal memo that was sent by the company’s CEO Evan Spiegel. According to the memo, the company plans to grow the user base to 450 million by the end of the next year.

Gamestop has also enjoyed some support today and made an attempt to settle above the $26 level after the company revealed its new partership with the crypto exchange FTX. Gamestop stock has been under serious pressure in recent weeks, and it remains to be seen whether the new crypto partnership will boost interest in the meme stock.

From a big picture point of view, the market needs additional catalysts to continue its rebound. Most likely, trading will remain highly volatile ahead of the Fed decision, which will be released on September 21. While traders look ready to buy stocks after the major pullback, the hawkish Fed may limit their appetite for risk.

For a look at all of today’s economic events, check out our economic calendar.

S&P 500 Gets Above 3850 As Bank Stocks Rally

Key Insights

  • Retail Sales and Consumer Sentiment report exceeded analyst expectations, which was bullish for S&P 500. 
  • A strong rally in bank stocks provided significant support to the market. 
  • Trading will remain volatile ahead of the Fed meeting on July 27.

Retail Sales And Consumer Sentiment Reports Beat Expectations

S&P 500 gained strong upside momentum as economic reports indicated that the economy remained in a decent shape despite recession worries.

U.S. Retail Sales increased by 1% month-over-month in June, compared to analyst consensus of 0.8%. The preliminary reading of the Michigan Consumer Sentiment report showed that Consumer Sentiment increased from 50 in June to 51.1 in July, while analysts expected that it would decline to 49.9.

Meanwhile, Industrial Production and Manufacturing Production reports were worse than expected. Industrial Production declined by 0.2% month-over-month in June, while Manufacturing Production decreased by 0.5%.

Traders ignored these weak reports and focused on the better-than expected Retail Sales and Consumer Sentiment reports. It looks that declining probability  of a 100 bps rate hike at the next Fed’s meeting served as the key catalyst for market optimism.

Traders Shrug Off Recession Worries

While stocks are moving higher, traders should note that markets continue to prepare for a potential recession. The 2-year Treasury yield is fluctuating near the 3.10% level, while the yield of 10-year Treasuries is near 2.90%. Typically, an inverted yield curve serves as a reliable indicator of an upcoming recession.

Copper, which is sensitive to global economic outlook, has tested new lows today. Falling copper prices also point to the potential recession.

Today, recession worries were offset by the strong reports from Citigroup and Wells Fargo. These stocks have been under pressure for months, and traders rushed to buy them when the reports indicated that the situation was not as bad as the market expected. In fact, Wells Fargo stock gained 7% despite missing analyst estimates, which shows that market’s expectations were even lower.

From a big picture point of view, trading will likely remain volatile ahead of the Fed meeting at the end of this month.

For a look at all of today’s economic events, check out our economic calendar.

Crypto Market Daily Highlights – June 22 – Powell Sinks DOGE and ETH

Key Insights:

  • After brief relief on Tuesday, volatility spiked on Wednesday, with Fed Chair Powell pulling the crypto strings.
  • Dogecoin (DOGE), Ethereum (ETH), and Solana (SOL) joined bitcoin (BTC) in deep the red. Solana saw a five-day winning streak come to an end.
  • The total market cap reversed gains from Monday and Tuesday, with a $33 billion fall to end the day at $862 billion.

It was yet another choppy session for the crypto market on Wednesday. Recession fears plagued bitcoin (BTC) and the broader crypto market. Apprehension ahead of Fed Chair Powell’s testimony on Capitol Hill added to the market angst.

The NASDAQ Mini 100, WTI crude oil, and the crypto market were in the red going into the afternoon session.

Market sensitivity to Fed Chair Powell’s testimony was evident, not only across the global equity markets, but also across the crypto market.

However, after tracking the NASDAQ 100 through the early part of the Powell testimony, a decoupling was evident later.

On Wednesday, the NASDAQ 100 slipped by 0.15%, while bitcoin slid by 3.6%.

WTI crude slid by 4.03% to $106.19, with the reversal more aligned with the crypto market and reflective of investor jitters over the risk of a US recession.

WTI and BTC sink/
NASDAQ BTC WTI 230622 5 Minute Chart

Today, the second day of Fed Chair Powell’s testimony on Capitol Hill will draw interest along with key stats from the US.

Economic data from the US include prelim June private sector PMIs and the weekly jobless claims. The numbers will need to be upbeat to support the Fed Chair’s view on labor market conditions and the economy.

Crypto Market Cap Hits Reverse as Powell Talks Recession

A bearish crypto session saw the total crypto market cap fall to a day low of $852 billion before a partial recovery to end the day at $861.5 billion.

On Wednesday, $33 billion came off the table as investors responded to Fed Chair Powell’s testimony.

Crypto market cap hits reverse.
Total Market Cap 230622 Daily Chart

The pullback reversed modest gains from earlier in the week, with the market cap now down $19 billion for the week and $431 billion for June.

Any market hope of Powell removing downside risks vanished on Wednesday. Initially, the market responded positively to early comments before hitting reverse.

In line with market expectations, Fed Chair Powell discussed the need to continue hiking rates to bring inflation back to target.

According to FX Empire, Powell noted,

“We anticipate that ongoing rate increases will be appropriate; the pace of those changes will continue to depend on the incoming data and the evolving outlook for the economy.”

For riskier assets, Powell’s reference to the influence of incoming data and the economic outlook on the Fed interest rate path eased immediate concerns of a hard landing.

The support was brief, however, with the Q&A session highlighting the Fed’s threat to the US economy.

Market reaction to the testimony left the top ten cryptos in negative territory.

DOGE (-6.21%), ETH (-6.75%), and SOL (-6.25%) led the way down.

ADA (-4.75%) and BTC (-3.63%) also struggled, while BNB (-2.64%) and XRP (-1.89%) saw relatively modest losses.

From the CoinMarketCap top 100, Waves (WAVES) was the biggest loser, sliding by 15.39%, the downside partially reversing a 43.04% breakout from Tuesday.

Several cryptos bucked the trend, with Polygon (MATIC) and Uniswap (UNI) among the front runners. MATIC and UNI ended the day with gains of 8.49% and 4.32%, respectively.

Stablecoins Hold Steady Despite USDD Peg Issues

On the stablecoin front, USDD avoided a fall to sub-$0.97 before striking a day high of $0.9762.

USDD
USDD 7-Day Chart 230622

Since June 13, TRON DAO Reserve has yet to restore the dollar peg. Despite this, a partial recovery from a June 19 of $0.9256 remains good enough for the market.

Transparency has proven to be the key, with initial investor fear of another stablecoin collapse abating.

According to TRON DAO Reserve, the collateral ratio stood at 324.16%.

USDD collateral ration TRX positive.
USDD Collateral Ratio 230622

Looking at the major stablecoins, Binance USD (BUSD) and USD Coin (USDC) were the only coins with the dollar peg firmly in place.

Total Crypto Liquidations Eased Further Back Powell’s Testimony

The downward trend in total crypto liquidations continued into this morning.

24-hour liquidations slipped from a Wednesday $170.27 million to $165.11 million this morning. Last week, total liquidations had hit $1 billion levels.

One-hour liquidations reflected improved market conditions.

According to Coinglass, one-hour liquidations stood at $2.05 million.

total crypto liquidations ease.
Total Crypto Liquidations 230622

A decline in 24-hour total liquidations to sub-$100 million would deliver crypto market support. Persistent headwinds, including the threat of an economic recession, will continue to test support cryptos.

Daily News Highlights

  • Crypto.com obtained Singapore regulatory approval for payment services.
  • Citibank & Swiss company METACO announced plans to develop institutional crypto custody.
  • Israel and Hong Kong reported plans to test new digital currencies.
  • Tether (USDT) announced its fifth stablecoin offering, the GBPT.
  • Cardano (ADA) slumped on news of a delay to the Vasil hard fork.
  • Crypto mining became more accessible as miners sold graphic cards at heavy discounts.

Citibank & Swiss Company METACO to Develop Institutional Crypto Custody

Key Insights:

  • Citibank will be leveraging METACO’s digital asset custody and orchestration platform.
  • Citi Securities Services already has over $27 trillion worth of AUM.
  • The global crypto market cap is stuck under $900 billion.

The growth of the crypto market has been significantly successful, but it is yet to reach the mainstream audience entirely. Citibank is ensuring that happens using its reach, and the most recent partnership is another step in that direction.

Citibank X METACO

The global bank announced in a press release its partnership with the Switzerland-based technology company METACO to develop Institutional Digital Asset Custody potential for its users.

The seven-year-old Swiss company’s bank-grade digital asset custody and orchestration platform Harmonize will be integrated into Citi’s existing infrastructure. 

This will allow Citi to develop and pilot digital asset custody capabilities and also use its expansive custody network to enable clients to store and settle digital assets.

Commenting on this partnership, the Global Head of Securities Services at Citi, Okan Pekin, said,

“We are witnessing the increasing digitization of traditional investment assets along with new native digital assets. We are innovating and developing new capabilities to support digital asset classes that are becoming increasingly relevant to our clients.”

Citi Securities Services already has over $27 trillion worth of assets under its custody, administration, and trust. At the same time, METACO has been an important figure in several key implementations, including FINMA, BaFin, FCA, Banco de España, and MAS-regulated institutions.

The Crypto Market Takes a Dip

While the partnership is beneficial to both companies, the decision came at a time when the entire crypto market has been in an iffy spot.

After losing more than $435 billion this month, the crypto market cap fell under $1 trillion and is currently at $879 billion.

Although mixed signals regarding recovery have been visible for a while now, the volatility visible on-chain makes it difficult for the market to stick to one path.

Thus when the market could reclaim the $1 trillion is unknown, but investors still happen to remain hopeful.

US Labor Department Raises Concern Over Fidelity Crypto Investment Product

Key Insights:

  • Fidelity Investments announced plans to enable Bitcoin investment with 401(K) plans in the US.
  • News of the option to include Bitcoin in its 401(K) accounts has raised concerns.
  • Last week, Fidelity Investments launched Web3-focused ETFs targeting younger clients.

It has been a busy final week of the month for the financial industry and the crypto market.

This week, US investment bank Goldman Sachs announced it was exploring the tokenization of financial securities. Last month, Goldman carried out its first over-the-counter (OTC) trade with Galaxy Digital.

On Thursday, Wall Street’s crypto first-mover Goldman offered its first Bitcoin (BTC) backed loan facility on Thursday.

Also taking strides into the crypto world is Fidelity Investments. Fidelity’s latest move, however, has caught the eye of the US Labor Department.

US Labor Department Raises Concerns over Fidelity’s 401(K) Plans

On Thursday, the Wall Street Journal reported concerns among Labor Department officials about Fidelity Investment’s plan to allow investors to put Bitcoin (BTC) in their 401(K) accounts.

According to the report, acting assistant secretary of the Employee Benefits Security Administration, Ali Khawar, said,

“We have grave concerns with what Fidelity has done.”

Khawar reportedly also discussed the hype around Bitcoin and the broader crypto market and the speculative nature of cryptocurrency investments.

The US Labor Department responded to news of Fidelity’s plans to widen the crypto net.

This week, Fidelity Investments announced plans to offer digital asset investment as part of US retirement plans.

According to the report, MicroStrategy has already signed up for the offering. It remains to be seen whether the Labor Department will scupper Fidelity’s goal to offer crypto to a wider investment audience.

Fidelity Investments Goes All in on Crypto and Web3

Last week, Fidelity Investments launched two web3 ETFs to target a younger customer base.

Fidelity Investments launched the Fidelity Crypto Industry and Digital Payments ETF (FDIG) and the Fidelity Metaverse ETF (FMET).

Both ETFs have a net expense ratio of just 0.39 and provide investors an easy opportunity to gain exposure to cryptos and web3. The latest offering followed some bullish projections on the metaverse.

US banking giants Citi and JPMorgan have drawn headlines with bullish projections for the metaverse.

In March, Citi projected a $13 trillion metaverse by 2030, with JPMorgan projecting a $1 trillion in metaverse-related yearly revenues.

Goldman Sachs Approves First Bitcoin-Backed Loan Facility

Key Insights:

  • This week, Goldman Sachs issued its first Bitcoin (BTC) backed loan.
  • The collateralized facility includes 24-hours risk management
  • Goldman Sachs continues to push the envelope as it explores the tokenization of financial instruments.

Goldman Sachs is taking big strides in becoming a leading bank in the digital asset space. In May 2021, the US investment bank rebooted its cryptocurrency desk in response to improving crypto market conditions.

Goldman first established a crypto desk in 2018.

This week, Goldman took another big step into the digital asset world.

Goldman Sachs Issues Bitcoin-Backed Cash Loan

On Thursday, news hit the wires of Goldman Sachs offering its first Bitcoin (BTC) backed loan facility.

According to the report, the borrower pledged Bitcoin as collateral in a cash loan.

As a first-mover on Wall Street, the bank reportedly found the deal interesting due to its structure and need for 24-hour risk management.

The latest link between digital assets and fiat follows last month’s first over-the-counter (OTC) crypto trade with Galaxy Digital. According to the CNBC report, Goldman was “the first major US bank to trade crypto over the counter.”

This week, there was also news of Goldman Sachs exploring the tokenization of financial instruments.

While Goldman Sachs may be a first-mover among the banking fraternity, crypto-linked financial products are becoming more commonplace.

Crypto-Linked Financial Products Are More Mainstream than Ever

It is a busy year for cryptos and financial institutions.

This week, DeFi protocol Portal partnered with HighCircleX (HCX) to tokenize pre-initial public offering (IPO) company stocks. The partnership addresses the issue of illiquidity by tokenizing pre-IPO stocks. HCX marketplace then supports the trading of the tokenized assets.

In April, crypto firm XBTO offered Bitcoin collateralized mortgages in Miami. The product allows Bitcoin holders to avoid capital gains tax and benefit from any upward trend in Bitcoin value.

According to Thursday’s Bloomberg report, the co-president of Galaxy Digital Holdings Damien Vanderwilt recently said,

“Lending to companies that provide virtual currencies as collateral is the next step.”

With US banking giants Goldman Sachs, JPMorgan, and Citi also bullish about NFTs and metaverse, we expect more bank-linked digital and virtual news to hit the crypto wires in the months ahead.

Bitcoin Price Action

At the time of writing, Bitcoin was down by 0.10% to $39,715.

BTCUSD 290422 Daily
Bitcoin continues to struggle, with resistance at $40,000 now key.

Technical Indicators

Bitcoin will need to avoid the day’s $39,678 pivot to target the First Major Resistance Level at $40,461. Bitcoin would need broader market support to a return to $40,000.

In the event of an extended rally, Bitcoin could test the Second Major Resistance Level at $41,173 and resistance at $41,500. The Third Major Resistance Level sits at $42,668.

A fall through the pivot would bring the First Major Support Level at $38,968 into play. Barring another extended sell-off, Bitcoin should avoid sub-$38,000. The Second Major Support Level at $38,186 should limit the downside.

BTCUSD 290422 Hourly
A fall through the pivot would bring support levels into play.

Looking at the EMAs and the 4-hourly candlestick chart (below), it is a bearish signal. Bitcoin sits on the 50-day EMA, currently at $39,759. This morning, we saw the 50-day EMA narrow to the 100-day EMA, delivering support. The 100-day EMA pulled back from the 200-day EMA, BTC negative.

A move through the 100-day EMA at $40,420 would support a run at $42,000.

BTCUSD 290422 4-Hourly
A move through the 100-day EMA is needed to shift sentment.

Nike and RTFKT Go to the Metaverse with CryptoKicks Sneakers

Key Insights:

  • Nike and RTFKT launch CryptoKicks sneakers collection for the Metaverse.
  • In December, Nike bought NFT Sneaker shop RTFKT to drive its web3 goals.
  • Nike went Metaverse in 2021 with ‘NIKELAND’, where players can dress their avatars in Nike products.

As the year progresses, activity in the metaverse continues to gather momentum, with mainstream players identifying web3 as the future.

Metaverse-related trademark filings have been rampant, with Web3 offering endless growth opportunities.

When U.S banking giants JPMorgan and Citi get bullish it is hard to ignore.

In February, JPMorgan put its money where its mouth is, buying land in Decentraland (MANA). JPMorgan projected the Metaverse to deliver over $1 trillion in Metaverse-related yearly revenues.

Last month, Citi delivered a more bullish outlook, projecting a $13 trillion Metaverse by 2030.

NIKE and RTFKT Hit the Metaverse Running with CryptoKicks

Overnight, RTFKT Studios hit Twitter to share a video of the new RTFKT x Nike Dunk Genesis CryptoKicks.

RTFKT tweeted,

“RTFKT, together with Nike CryptoKicks, introduce the future of Sneakers, powered by Skin Vial tech.”

RTFKT and Nike CryptoKicks launch with EVO X, a collection that allows users to change their look with Skin Vials. Skink Vials are collectibles that users can swap.

Collectors can view the Ethereum (ETH) based Skin Vials and RTFKT X Nike Dunk Genesis CryptoKicks Sneakers on OpenSea.

According to OpenSea,

“When equipped with RTFKT Skin Vial NFT, the look of the RTFKT X Nike Dunk Genesis CryptoKicks changes according to the traits of the vial.”

At the time of writing, there were 878 owners with a floor price of 2.79 ETH.

Nike Becomes a Web3 Trailblazer with the Latest Launch

Leading apparel and sports brand Nike is no stranger to web3. In November, Nike went Metaverse with the launch of ‘NIKELAND’, Nike’s Metaverse home on Roblox Corp.

Nike announced the launch of NIKELAND in November, saying,

“Buildings and fields inside NIKELAND are inspired by Nike’s real-life headquarters and hold detailed arenas for the Roblox community to test their skills competing in various mini-games.”

Players can also dress their avatars in Nike products and play games, including Tag, Dodgeball, and The Floor is Lava.

Soon after the launch, Nike purchased NFT sneaker creator RTFKT. Nike purchased RTFKT to support its metaverse goals following the launch of NIKELAND.

There are no other details relating to the CryptoKicks launch, but the RTFKT X Nike Dunk Genesis CryptoKicks could make their way to the NIKELAND digital showroom.

Fidelity Investments Targets Investors with Web3 ETFs

Key Insights:

  • Fidelity Investments targets a younger client base with web3 ETFs.
  • This month, Fidelity launched a digital asset and a Metaverse ETF.
  • U.S. banks have been bullish about the Metaverse for some time, with JPMorgan buying land in the Metaverse.

As more mainstream players enter the NFT space and the Metaverse, investors will be looking for both active and passive investment opportunities.

Such is the hype that JPMorgan and Citi have delivered impressive projections for the web3 economy.

Last month, Citi jumped on the web3 bandwagon, projecting a $13 trillion Metaverse by 2030. Citi’s projection followed a more conservative JPMorgan projection in February.

JPMorgan projected the Metaverse to deliver over $1 trillion in Metaverse-related yearly revenues. In February, JPMorgan put its money where its mouth is, buying land in Decentraland (MANA).

It, therefore, comes as little surprise that leading investment shops are starting to offer web3 investment products.

Fidelity Investment Launches Web3 ETFs to Widen the Client Base

This week, Fidelity Investments launched the Fidelity Crypto Industry and Digital Payments ETF (FDIG) and the Fidelity Metaverse ETF (FMET).

Fidelity launched FMET on April 19, 2022. According to the Fund objective,

“The fund seeks to provide investment returns that correspond, before fees and expenses, generally to the performance of the Fidelity Metaverse Index.

The Fidelity Metaverse Index is designed to reflect the performance of a global universe of companies that develop, manufacture, distribute, or sell products or services related to establishing and enabling the Metaverse.”

Fidelity launched FDIG on April 21, 2022. According to the Fund objective,

“The Fund seeks to provide investment returns that correspond, before fees and expenses, generally to the performance of the Fidelity Crypto Industry and Digital Payments Index.

The Fidelity Crypto Industry and Digital Payments Index is designed to reflect the performance of a global universe of companies engaged in the activities related to cryptocurrency, related to blockchain technology, and digital payments processing.”

For investors looking for low fee investment opportunities, the two ETFs have a net expense ratio of 0.39.

As of June 2021, Fidelity Investments had US$4.2tn in assets under management.

Fidelity Investment Follows in the Footsteps of ProShares

ProShares is an issuer of exchange-traded funds with a 2021 Assets Under Management of US$65bn.

The ProShares Vers ETF launched on March 15, 2022, and “seeks investment results, before fees and expenses, that track the performance of the Solactive Metaverse Theme Index.”

“The Solactive Metaverse Theme Index is designed to track the performance of companies that have, or are expected to have, significant exposure to the provision of products and/or services that contribute to the Metaverse industry, as determined by the index methodology.”

Compared with the Fidelity ETFs, the ProShares Vers ETF has an expense ratio of 0.58.

With only a handful of big names already in the space, more ETFs will launch. Mutual funds will likely follow.

Bank Stocks Will Keep Underperforming. It’s The Business Cycle.

Summary

Bank stocks are sensitive to interest rates.

Interest rates are sensitive to the strength of the business cycle.

The attractiveness of bank stocks depends on the trend of the business cycle. Not interest rates.

My article of January 2021 concluded:

“…… rising yields at the beginning of a business cycle is good news for bank stocks. Yields rising to levels damaging the economy and causing the business cycle to decline is bad news for the banking sector.”

To recognize what is happening now it is useful to review how the banking sector responds to changes in the business cycle.

Chart, pie chart Description automatically generated

Source: The Peter Dag Portfolio Strategy and Management

Business Cycle and Its Phases

The business cycle goes through four distinctive phases. The trends pointing to the end of Phase 4 are:

  • Commodity and inflation are declining.
  • Sales growth is lower than the pace of inventory accumulation.
  • Income after inflation starts rising.
  • Consumer confidence rebounds as consumers respond favorably to the decline of inflation, interest rates, and to the rise of real income.

These favorable developments create the conditions for the business cycle to move into Phase 1. Sales increase because of consumers’ improved financial conditions. Business is forced to boost production to build up inventories to respond to the rising demand. Business will have to hire new people, buy raw materials, and increase borrowing to improve and possibly expand capacity.

These activities place a floor on commodities and interest rates. As the positive feedback continues, improved sales feed into rising inventories, rising employment, and increased borrowing.

This expansion benefits the banking sector, of course, because it provides the liquidity needed to fuel the positive loop thus creating even more growth. This is the time when bank stocks outperform the market.

There is a point, however, when the high level of production places upward pressure on commodities, interest rates, and inflation. The business cycle enters Phase 2, reflecting an even stronger economy.

But rising commodities, interest rates, and inflation eventually have a negative impact on the finances of consumers as it is happening now. Consumer confidence peaks and then declines. Demand for goods slows down.

Business recognizes inventories are now rising too rapidly due to the slower demand and are having a negative impact on earnings. Production is curtailed. Purchases of raw materials are reduced. Hiring is cut. Improvements and expansions of capacity are delayed resulting in lower borrowing, an unwelcome development for banks.

What Phase Are We in Now?

Chart, line chart, histogram Description automatically generated

Source: StockCharts.com, The Peter Dag Portfolio Strategy and Management

The above chart shows the business cycle indicator updated in real time from market data and reviewed in each issue of The Peter Dag Portfolio Strategy and Management. It shows the previous two cycles (2011-2014 and 2014-2020) and the current one started in 2020.

This indicator and data about growth in heavy truck sales, in income after inflation, in retail sales after inflation, and the action of the defensive market sectors (see below) confirm the business cycle is now declining, reflecting slower economic growth. The business cycle is now in Phase 3.

The slowdown process will continue until the causes that produced it are brought under control and consumers recognizes their finances are improving. This new environment will be characterized by the decline in inflation and interest rates. This process will take place in Phase 4, the most painful phase for consumers and the financial markets.

During Phase 3 and Phase 4 the sectors outperforming the markets are utilities (XLU), healthcare (XLV), staples (XLP), REITs, and long duration Treasury bonds.

The performance of the various sectors keeps repeating as the business cycle swings from periods of stronger to weaker growth.

Source: StockCharts.com, The Peter Dag Portfolio Strategy and Management

The sectors outperforming the market over the last two hundred days (except for energy) have been the four sectors mentioned above. Their performance confirms the business cycle is declining, reflecting a weakening economy.

The financial sector, and banks in particular, is a cyclical sector outperforming the market during periods of strengthening business cycle.

Chart, line chart, histogram Description automatically generated

Source: StockCharts.com, The Peter Dag Portfolio Strategy and Management

The above chart shows the ratio of Invesco KBWB bank ETF and the S&P 500 ETF (ratio KBWB/SPY). The ratio rises when bank stocks outperform the market. The ratio declines when bank stocks underperform the market.

The lower panel of the above chart shows the business cycle indicator computed in real-time as reviewed in each issue of The Peter Dag Portfolio Strategy and Management.

The chart shows bank stocks outperform the market (the ratio rises) when the business cycle rises, reflecting a strengthening economy. The ratio declines, reflecting the underperformance of the bank stocks, when the business cycle indicator declines in response to a weakening economy. Chart, histogram Description automatically generated

Source: StockCharts.com, The Peter Dag Portfolio Strategy and Management

The above chart shows regional banks stocks (ETF: KRE) respond like the major center banks stocks to the changes of the business cycle. They outperform the market when the business cycle indicator rises and underperform the market when the business cycle indicator declines. Chart, histogram Description automatically generated

Source: StockCharts.com, The Peter Dag Portfolio Strategy and Management

Even large and well managed banks like JP Morgan (JPM) are not immune to the changes in the business cycle as shown in the above chart. The stock of JP Morgan outperforms the market when the business cycle rises and underperforms the market when the business cycle declines.

Key Takeaways

  1. Bank stocks respond to changes of the business cycle and not of interest rates.
  2. Bank stocks outperform the market when the business cycle rises, reflecting a strengthening economy (Phase 1 and Phase 2 of the business cycle).
  3. There is a point when rising interest rates and inflation cause the business cycle to decline. This is the time when bank stocks start underperforming (Phase 3 and Phase 4 of the business cycle).

Best Bank Stocks To Buy Now

Key Insights

  • Banks have recently released their earnings reports. 
  • Some banks have managed to exceed analyst estimates, and their stocks moved away from yearly lows. 
  • Some leading bank stocks are down by 25% – 35% from their highs, so speculative traders will likely start searching for bargains.

Bank stocks are trading near yearly lows as the market is worried that rising rates and high commodity prices will slow down the economy and hurt bank profits. However, some bank stocks have already suffered strong pullbacks from their recent highs and may attract speculative traders.

Bank of America

Bank of America has just released its first-quarter results. The company reported revenue of $23.2 billion and earnings of $0.80 per share, beating analyst estimates on both earnings and revenue.

Ahead of the report, the stock was down by roughly 25% from highs that were reached back in February. The results exceeded analyst estimates, and traders rushed to buy the stock near yearly lows.

Citigroup

Citigroup stock has also enjoyed support after the recent earnings report. The stock has been moving lower for many months after it touched highs near the $80 level back in June 2021.

The market was skeptical about Citigroup’s financial performance, but the company has easily managed to beat analyst estimates on both earnings and revenue, and the stock received a major boost. Citigroup stock has a good chance to develop additional upside momentum in the upcoming weeks as it is still down by about 35% from 2021 highs.

JP Morgan Chase

Unlike the above-mentioned banks, JP Morgan had a disappointing quarterly report. The company missed analyst estimates on earnings as it had to build credit reserves.

More details on the company’s outlook will be revealed on Investor Day on May 23. However, speculative traders may still buy the company’s stock after the strong pullback as the company’s shares have already moved to the levels last seen at the start of 2021.

For a look at all of today’s economic events, check out our economic calendar.

Citigroup Rebounds From Yearly Lows, Here Is Why

Key Insights

  • Citigroup’s Q1 report beat analyst estimates on both earnings and revenue. 
  • Recent earnings reports from JPMorgan and Wells Fargo were disappointing, so traders rushed to buy Citigroup after a better-than-expected report. 
  • Analyst estimates keep moving lower, and the continuation of this trend may put more pressure on the stock. 

Citigroup Stock Gains Ground After Quarterly Report

Shares of Citigroup gained upside momentum after the company released its first-quarter report.

Citigroup reported revenue of $19.2 billion and earnings of $2.02 per share, beating analyst estimates on both earnings and revenue. The company noted that revenue declined by 2% year-over-year, while earnings decreased by 44%, “driven by higher cost of credit, higher expenses, and the lower revenues”.

While the year-over-year comparison looks bleak, the market expected weaker results from Citigroup, so the stock managed to move further away from recent lows.

What’s Next For Citigroup Stock?

The recent reports from banks have been disappointing. JPMorgan Chase  found itself under strong pressure yesterday, after the company missed analyst estimates on earnings and highlighted “significant geopolitical and economic challenges”. Wells Fargo  moved lower today after reporting a 5% year-over-year revenue decline.

In this environment, Citigroup’s ability to beat analyst estimates provided material support to the stock. However, it remains to be seen whether the current strength will be sustainable.

Bank stocks are moving lower as the market is worried about the negative impact of higher interest rates on the economy. JPMorgan was the bank that  highlighted this issue, but the whole industry will face problems in case companies and consumers feel the pressure from higher rates.

Analyst estimates have been moving lower in recent months, and this trend may be continued due to external factors. At this point, it looks that the risk of further downside remains.

For a look at all of today’s economic events, check out our economic calendar.

Stock Markets: Top 3 Things You Need To Know This Week

Keep in mind, this week is the official start of the US corporate earnings season and at the same time, there is going to be a lot of economic and inflation data being released as well as the latest headlines regarding Russia’s war in Ukraine.

It is also a short trading week with stock, bond, and commodity markets closed on Friday for Good Friday, which could bring some added volatility as we get closer to the long weekend.

SP500 Earnings

Most Wall Street traders recognize that the S&P 500 rally off the March 2020 lows was built on extremely strong US corporate earnings power. Several traders and investors are quick to remind us that prior to the Covid outbreak S&P 500 company earnings were averaging around $40/share per quarter. Fast forward to our last earnings report that showed 2021 Q4 earnings and we see an average of $55/share. In other words, there was a +38% jump in earnings from before the pandemic to our last quarterly estimates, which puts us fairly in line with the current price level of the S&P 500. The question is can US corporate earnings continue to show growth?

I worry because interest rates are starting to aggressively creep higher, wage inflation is real, energy inflation is real, the cost of doing business is obviously higher and supply chain dislocations are still creating supply-side imbalances.

China in the Spotlight

Remember, China’s lockdown in Shanghai continues. The lockdown began on March 28 in half the city but has since expanded to its entire population of around 26 million. A trucker shortage and closures of warehouses in Shanghai are also affecting nearby provinces of Zhejiang and Jiangsu, according to a recent note from Citigroup analysts.

The two provinces are major manufacturing hubs that produce about one-third of China’s total exports. Shipping experts warn the fallout will start to be felt in the months ahead as severe dislocations once again drive up shipping costs and exacerbate shortages of raw materials and other essential supplies. There are also lingering concerns about energy prices as Europe continues to debate the possibility of banning Russian oil and gas supplies. Such a move could bring another dramatic rise in prices as available global supplies get spread even more thin.

Data to Watch

The Atlanta Fed is now forecasting just +1.1% Q1 US GDP growth, whereas, three of their last four Quarterly readings were all above +6.1%. At the same time, there are a lot more investors and economists also starting to walk back their global economic growth estimates. Several sources are thinking Ukraine’s economic output will likely contract by -40% to -50%.

More economists are also forecasting a double-digit reduction in Russia’s GDP, as well as much larger reductions in countries like Belarus and Moldova. Growth estimates in the Central Europe region i.e. Bulgaria, Croatia, Hungary, Poland, and Romania are also starting to be reduced.

There was also more talk over the weekend that Russia could eventually start to default on some of its “external debt” for the first time since 1917.

As for this week, all eyes will be on Consumer Price Index, scheduled for release Tuesday morning, and the Producer Price Index scheduled for release Wednesday morning. Both will work to add a bit more color to our current inflation debate.

Also on Wednesday, we get the first batch of Q1 earnings from a few big names like JPMorgan, Black Rock, Bed, Bath & Beyond, and Delta. Then on Thursday the trade will be digesting the latest Retail Sales data and another round of earnings from names like Citigroup, Wells Fargo, Goldman Sachs, Morgan Stanely, and United Health Group.

Keep in mind, several of the largest US banks might be reporting their biggest slowdown in investment banking revenue in years, as more and more “deals” have been getting put on the back-burner. Who knows how long this slowdown will last?

For a look at all of today’s economic events, check out our economic calendar.

Citi Gets Bullish, Projecting a $13 Trillion Metaverse by 2030

Key Insights:

  • On Thursday, Citi analysts projected the Web3 economy to reach $13 trillion by 2030.
  • Greater access to host use cases, including commerce, art, media, advertising, healthcare, and social collaboration, support the bullish outlook.
  • Significant infrastructure investment is needed to reach around five billion Metaverse users.

Market sentiment towards the Metaverse has turned yet more bullish. More mainstream players are entering the Metaverse. Trademark application filings suggest a marked increase in virtual engagement.

Across the broader crypto market, Metaverse-related news has been a key to price action. This week, Zilliqa (ZIL) has surged by more than 100% in response to Metaverse-related news updates on Metapolis. Metapolis is powered by Zilliqa.

With the increased activity and endless possibilities, banks have become particularly bullish with their Metaverse projections.

Citi Projects a $13 Trillion Metaverse and Five Billion Users

Citi delivered a bullish assessment of Web3 on Thursday.

An analyst report talked of the Metaverse becoming the next generation of the internet, bridging the digital and physical worlds in an immersive manner.

The report delivered two projections:

  • A narrow definition with Metaverse usage limited to VR/AR headset users. Analysts project 900m to 1bn users by 2030 and a total addressable market estimate of between $1tn and $2tn.
  • A broad definition, with the Metaverse having unique internet users. Analysts project 5bn users by 2030 and a total addressable market estimate of between $8tn and $13tn.

Citi views gaming as the primary Metaverse use case. Analysts expect the Metaverse to expand and allow people to find new ways to carry out everyday activities.

‘Enterprise use cases of the Metaverse in the coming years will likely include internal collaboration, client contact, sales and marketing, advertising, events and conferences, engineering and design, and workforce training.’

The report does highlight that in its current form, the internet infrastructure is inadequate for ‘building a fully-immersive content streaming Metaverse environment.’

Significant investment is needed to integrate the Metaverse with the real world. Low latency is considered a critical factor in delivering an appropriate user experience.

For a truly immersive Metaverse experience, the report highlights the need for sub-12ms latency and faster connectivity speeds.

In the Metaverse, NFTs will also be a key component. Users can store NFTs in digital wallets and take them everywhere within the Metaverse.

Big Names Take to the Metaverse Supporting Citi’s Outlook

Mainstream interest in Web3 has surged since the beginning of the year. Corporations across industries have entered the Metaverse or have filed Metaverse-related trademark applications.

In February, McDonald’s entered the Metaverse, giving fans a virtual experience to celebrate the Lunar New Year.

Warner Music Group bought land in The Sandbox (SAND), with the fashion industry also going virtual.

Last week, a 4-day fashion week took place in Decentraland (MANA), with big names from the fashion industry present.

Sport has also embraced Web3. In January, Tennis Australia went virtual for the Australian Open. The Metaverse gave fans virtual access to Melbourne Park.

The increased activity had caught the eye of JPMorgan earlier this year.

JPMorgan Buys Land and Projects a $1tn Metaverse

In February, JPMorgan put its money where its mouth and bought land in Decentraland. The U.S investment bank is bullish on the Metaverse, forecasting a $1 trillion market.

JPMorgan talked of the limitless opportunities that the Metaverse presents, ranging from virtual workspaces to music artists holding concerts. As a result of these opportunities, the bank sees all types and sizes of companies entering the Metaverse.

JP Morgan highlighted many issues that need addressing. These range from taxation to policing activity.

As more industries enter the Metaverse, the more bullish projections will likely have a cascade effect, accelerating the pace of infrastructure investment and mainstream adoption.

Citigroup Buying Interest Drops to 10-Year Low

Citigroup Inc. (C) is trading lower by less than 1% in Monday’s pre-market after Morgan Stanley downgraded the financial giant from ‘Equal Weight’ to ‘Underweight’, lowering the price target to $60. The bearish call follows other March downgrades from Jefferies, Atlantic Equities, and Keefe Bruyette, highlighting increased Wall Street skepticism about first quarter performance, ahead of the April 14 Q1 2022 earnings report.

Rising Inflation and Ukraine Headwinds

The commercial banking sector has struggled since the start of 2022, dropping major sector funds about 10%. Rising interest rates should underpin industry profits, increasing the spread between overnight rates paid by the bank and the cost to customers, but recession fears have taken hold of the group. The Ukraine invasion has made a bad situation worse, closing the door to investment opportunities in Eastern Europe while dampening worldwide sentiment for business expansion.

Jefferies analyst Ken Usdin downgraded Citigroup to ‘Hold’ earlier this month, lowering the price target to $60 while warning “management articulated a clear vision at the investor day but the new ROTCE targets are loftier (11% – 12%) and farther away (2024 – 2026) than our expectations. A model refresh puts our 2022/2023 EPS estimates well-below consensus at $6.80/ $7.00, respectively. While valuation has slipped to about 70% of TBV and 8x our revised EPS, negative revisions and global uncertainty could limit upside.”

Wall Street and Technical Outlook

Wall Street consensus stands at an ‘Overweight’ rating based upon 13 ‘Buy’, 2 ‘Overweight’, and 11 ‘Hold’ recommendations. In addition, two analysts are recommending that shareholders close positions. Price targets currently range from a low of $55 to a Street-high $100 while the stock is set to open Monday’s session less than a buck below the low target.  This dismal placement highlights a major disconnect between analyst optimism and investor risk appetite.

Citigroup bounced into the 50s in 2009 after nearing bankruptcy during the 2008 market crash. It finally cleared resistance in 2016, lifting to 80.70 in January 2018. January 2020 and June 2021 breakout attempts failed, giving way to a steady downtick that reached a 15-month low in February 2022. Accumulation readings have now fallen to the lowest low since 2012, when the stock was trading in the upper 20s.  This exodus raises odds for much lower prices in coming months.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Russian Crypto Volumes Fall, Debunking Theories of Evading Sanctions

Key Insights

  • Russian ruble-denominated crypto buying, selling, and trading on major exchanges have fallen.
  • This debunks theories circulating for a while about mass crypto buying in Russia to evade sanctions.
  • Several rounds of sanctions have been imposed by the US, EU, Canada, and other nations on key Russian Banks and some ministers.

Russian denominated crypto purchasing has gone down despite the bright larger market as most crypto assets recovered from their lower support levels.

According to blockchain-analysis firms, crypto transactions in Russian rubles have been decelerating on significant exchanges. However, the same debunks theories that the country could pivot to digital assets to avoid sanctions.

Crypto Not the Way out For Russia

Over the last week, Bitcoin gained over 20% as analysts and market experts attributed the sudden uptick to Russians buying cryptos amid increasing economic sanctions. However, the narrative that Russians are evading economic sanctions via crypto looked slightly off the mark.

Data from Chainalysis presented that ruble-denominated crypto trading volume was just $34.1 million on March 3. On February 24, trade volumes were around $70 million. The same meant that ruble-denominated crypto trading plunged by almost 50% over a week.

As per news reports, Citigroup Inc also estimates that actual Bitcoin buying from Russia was just 210 BTC on average per day in the last week. Notably, the total daily volume generally ranges between $20 billion and $40 billion.

That said, while Russians may still be trading on a peer-to-peer basis, large volumes should still be visible on the blockchain.

This trend mentioned above suggests the Bitcoin rally over the past week to above $45,000 had very little to do with the nation’s buying power in practice.

So, it seems like the recent uptick in Bitcoin’s price was primarily because traders expected a rise in Russia’s BTC buying power, not because the buying power saw a surge.

Increased Regulatory Scrutiny

The US has imposed several rounds of sanctions in response to Moscow’s unprovoked attack on Ukraine, including sanctions against Russian banks, its central bank, sovereign debt, and Foreign Minister Sergey Lavrov.

This weekend, the US, its European allies, and Canada agreed to cut off some Russian banks from the SWIFT interbank messaging system. SWIFT connects over 11,000 banks and financial institutions in nearly 200 countries and territories.

Furthermore, recently, the New York state increased its blockchain surveillance capacities to prevent cryptocurrencies from supporting Russian interests.

Citigroup Shares Fall After Company Releases New Financial Targets

Citigroup shares fell over 2% on Wednesday after the New York City-based investment bank at its first Investor Day forecasts that it will yield a medium-term return on tangible common equity of 11% to 12%, disappointing several analysts who had predicted slightly higher targets.

Citigroup’s expense growth has raised concerns among analysts. It is estimated that expenses will increase by 5% to 6% this year, excluding costs associated with divesting non-U.S. businesses.

Citi’s outlook calls for med.-term (3-5 year) ROTCE of 11%-12%, which is a big ramp from adj. ~8.5% core in ’21. Goals include 4%-5% rev. CAGR, <60% effic. ratio, and an 11.5%-12% CET1 ratio. The ’22 outlook ex-divest. incl. LSD rev. growth, driven by higher rates, modest loan growth, and better fees, offset by 5%-6% cost growth, with transformation/invest. the big drivers. Losses are expected to normalize higher, with a MT targeted NCOs of ~1%,” noted Ken Usdin, equity analyst at Jefferies.

At the time of writing, Citigroup stock traded over 2% to $57.17 on Wednesday.

Analyst Comments

Citi guiding to higher 2022 expenses of $51B (high end of their range), above our $47.5B estimate which is -$1.36 to EPS. This is 85% offset by higher revenues of $1.16, netting to 20c lower EPS for 2022. Will take time to redo our model for the new segments, but the trajectory near term is lower. 3-5 year out ROTCE guide of 11-12% is above our 10% 2025 estimate. Need much faster revenue growth to get there,” noted Betsy Graseck, equity analyst at Morgan Stanley.

“While the stock is cheap at 0.6x NTM BVPS, and new CEO is taking strong, proactive strategic action to boost returns closer to peers, we believe these actions will take time to play out. Citi is exiting 14 consumer businesses in Asia, EMEA and Mexico, and focusing on higher growth areas of US consumer, Asia WM, International wholesale and consumer payments. These actions could drive ROTCE higher than the 9% we are modelling for 2024, but we expect the stock will only start to fully reflect this once revenues begins to accelerate.”

Citigroup Stock Price Forecast

Seventeen analysts who offered stock ratings for Citigroup in the last three months forecast the average price in 12 months of $76.66 with a high forecast of $107.00 and a low forecast of $68.00.

The average price target represents a 35.27% change from the last price of $56.67. Of those 17 analysts, 10 rated “Buy”, seven rated “Hold”, while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $75 with a high of $107 under a bull scenario and $47 under the worst-case scenario. The investment bank gave an “Equal-weight” rating on the investment bank’s stock.

Several analysts have also updated their stock outlook. Wells Fargo lowered the target price to $80 from $85. Oppenheimer cut the price objective to $107 from $114. Credit Suisse slashed the target price to $72 from $76.

Technical analysis suggests it is good to sell as 100-day Moving Average and 100-200-day MACD Oscillator gives a strong selling opportunity.

Check out FX Empire’s earnings calendar

Why Netflix Stock Is Up By 8% Today

Netflix Stock Rallies After Analyst Upgrade

Shares of Netflix gained strong upside momentum and moved back above the $400 level after an upgrade from Citi analysts.

While the analyst upgrade served as a material driver for Netflix stock, it should be noted that other tech stocks are also performing well today. For example, Tesla stock is up by 7% while NVIDIA stock is gaining 4% during the current trading session.

It looks that traders have decided to pick up shares of oversold tech giants that have been severely punished during the recent sell-off in the tech space, which was triggered by rising Treasury yields. While the yield of 2-year Treasuries stays close to recent highs, the market’s appetite for risk is growing, and traders move back to fast-growing tech companies.

What’s Next For Netflix Stock?

Netflix stock has found itself under serious pressure after the company released its quarterly report. The company reported revenue of $7.71 billion and earnings of $1.33 per share, easily beating analyst estimates. However, the company’s subscriber additions missed analyst estimates, causing a massive sell-off which pushed the stock from the $520 level to the $380 level.

Analysts expect that Netflix will report earnings of $10.96 per share in 2022, so the stock is trading at roughly 38 forward P/E which is not cheap. In addition, earnings estimates have been cut materially after the recent report, and it remains to be seen whether analysts will continue to believe in the fast growth of Netflix.

Back in November, Netflix stock made an attempt to settle above the $700 level, so it’s not surprising to see that speculative traders decided to pick some shares when they traded near the $400 level. However, the stock is not cheap even after the massive sell-off, and its near-term dynamics will depend on whether the market is ready to move funds back into high-PE growth stocks.

For a look at all of today’s economic events, check out our economic calendar.

90 Year Old New York Bank To Offer Bitcoin Services Within 2 Months

As multiple countries such as Russia, Indonesia, and more continue to take a stab at crypto and its adoption, other events counter the effects. One such event is the announcement by Flushing Bank of its plans to offer Bitcoin services to its customers.

Bitcoin FUD About To Be Flushed

The parent company behind the Flushing Bank, Flushing Financial Corporation, made the announcement today as the bank entered into an agreement with Bitcoin company NYDIG. The deal is aimed at providing Bitcoin-based services to its customers. 

The President and CEO of the Flushing Financial Corporation stated during the announcement:

“Using NYDIG’s innovative technology to provide seamless access through our relationship with Q2, our online banking provider, we will be able to offer our customers the ability to buy, sell, and hold bitcoin. This partnership provides our customers with a fully integrated solution to conduct bitcoin transactions in a safe and secure environment.”

In response to the announcement, the CIO of NYDIG stated:

“Consumer interest in bitcoin is growing rapidly and NYDIG has the tools and expertise to help community banks meet that demand. Together with forward thinking institutions like Flushing Bank, we’re on the path to achieving our mission of bitcoin for all.”

The Bank has already established its roots in Queens, Brooklyn, Manhattan, and Long Island, and with these services, its presence could expand if investors are interested in these Bitcoin services.

The crypto adoption in NYC has been growing with the city’s mayor, Eric Adams, himself accepting his paycheck in Bitcoin recently. And this announcement could draw the attention of more people towards crypto.

Not the First Bank Though

Even before the Flushing Bank, many other significant banks announced their involvement with cryptocurrencies, including Standard Chartered, Citibank, JPMorgan Chase, Goldman Sachs, etc.

Just recently, the Bank of America too agreed that the evolution of digital currencies at the moment makes a United States own CBDC inevitable in the future.

All these adoptions provide crypto-invested investors a lot of hope for mainstream adoption.

Earnings Season Brings Worries to Wall Street

What is wrong with the banking sector?

Goldman Sachs yesterday became the latest to fan worries about declining profit margins after the bank reported a +33% jump in compensation which contributed to a -13% decline in Q4 profits.

The escalating costs mirror similar results disclosed by fellow big banks JPMorgan and Citigroup, as well as numerous other companies that have already reported or issued earnings warnings in recent weeks.

Just over 4% of S&P 500 companies have released Q4 earnings, and about 60% of those have cited a negative impact from higher labor costs on current and/or expected future earnings.

10-Year Treasury yield

Stock prices are also facing headwinds from a big jump in bond yields. The 10-Year Treasury yield hit 1.88%, the highest since before the pandemic hit and up from a low of 1.36% in early December.

This is largely a reflection of the U.S. Federal Reserve’s more hawkish monetary policy shift that is widely expected to now bring four or five interest rate hikes in 2022. However, there is a lot of uncertainty surrounding the exact timing and degree of those hikes, with many on Wall Street worried that ongoing labor market tightness, supply chain disruptions, Covid-related shutdowns, and geopolitical tensions will continue to drive costs even higher.

That in turn would likely mean even more aggressive action from the Federal Reserve.

There’s a lot of talk that the 10-Year could eventually push to 2.3% or even 2.5%. the market had to deal with a similar jump in the 10-Year back in 2013 during the “Taper Tantrum” or when the Fed had to start reversing their easing policy that had been associated with the US housing crisis global market meltdown.

If you remember, the stock market went through a fairly rough patch that year as the Fed shifted policy but eventually the market selloff stabilized and stocks rebounded to have a good year. this time around, however, many Wall Street insiders are talking about how the double whammy of escalating costs and higher interest rates is driving a shift away from so-called “momentum” stocks and back toward old school investment fundamentals.

Meaning investors are turning away from hot, trendy stocks that have defied gravity-and lacked profits-in favor of companies with proven track records and good cash flows.

Inflation fears are also once again being exacerbated by the oil market with prices hitting a seven-year high, the highest level since October 2014. The latest jump stems largely from deteriorating relations between fellow OPEC members after Yemen’s Iran-aligned Houthi group attacked the United Arab Emirates overnight on Monday. A Saudi-led coalition retaliated with airstrikes on the Houthi group. The renewed tensions between the UAE and Saudi Arabia raise the risk of more disruptions to the already tight global oil supply outlook.

Data to watch

Today, investors will be digesting Housing Starts and Permits for December, both of which are expected to pull back slightly from last months results.

On the earnings front, today’s highlights include Alcoa, Bank of America, Discover, Fastenal, Kinder Morgan, Morgan Stanley, Procter & Gamble, State Street, United Airlines, United Health, and U.S. Bancorp.

I still think there’s some rough sailing and uncertainty in the waters ahead… Also keep in mind, the Nasdaq 100 is quickly approaching its 200-Day Moving Average. Bulls want to argue that we are going to see a big bounce higher once we test that level. Bears argue that a close below that level could bring on a wave of heavy computer based technical selling. I’m not sure who is going to come out correct but I expect we see some extremes as the battle plays out… stay nimble!

Think About This… Perhaps +40% of fund managers have never traded or invested in a rising rate and rising inflation environment.

For a look at all of today’s economic events, check out our economic calendar.

Bank of America Bounces at Support After Strong Quarter

Bank of America Corp. (BAC) is trading higher by more than 3% in Wednesday’s pre-market after beating Q4 2021 earnings-per-share (EPS) estimates and reporting inline revenues. The banking giant posted a profit of $0.82 per-share, $0.06 higher than expectations, while revenue rose a healthy 9.8% year-over-year to $22.06 billion. The buy-the-news reaction took place at 50-day moving average support, suggesting the stock has posted a tradable low.

Named As Top 2022 Pick

Credit loss reserves improved by $542 million, with BAC recouping funds due to asset quality and macroeconomic improvements, partially offset by loan growth. Non-interest expense rose 6% to $14.7 billion, partially offset by pandemic related costs. Loan and lease balances added $10 billion to $945 billion, with the ending balance rising to $979 billion. The company traded at 15.1x forward earnings estimates ahead of the report, higher than Citigroup Inc. (C) and Well-Fargo and Co. (WFC).

Piper Sandler named Bank of America as the 2022 top pick at year’s end, adding a $57 price target last week. The institution is highly levered to rising rates that should increase overnight lending spreads and add to profits. Current consensus expects that rate increases will add $5 billion to the company’s net interest income by the end of 2023. And, although investment banking is expected to ease after a torrid 2021, it comprised 27% of revenue in the first three quarters. Continued growth in that segment should underpin performance well into 2023.

Wall Street and Technical Outlook

Wall Street consensus stands at a ‘Moderate Buy’ rating based upon 14 ‘Buy’, 2 ‘Overweight’, 8 ‘Hold’, 2 ‘Underweight’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $40 to a Street-high $64 while the stock is set to open Wednesday’s session about $4 below the median $52 target. Given this placement, Bank of America is well positioned to rally into a test of the multiyear high above $50, posted earlier this month.

Bank of America broke out above 8-year resistance in the 20s in 2016 and tested that level successfully during March 2020’s pandemic decline. The subsequent uptick mounted the Feb. 2020 peak in March 2021, ahead of a buying spike that’s reached within 5 points of the 2006 all-time high. That level marks the obvious target in this advance but keep in mind that old highs also denote major resistance that can take a long time to overcome.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held no positions in aforementioned securities at the time of publication.