Slice Or Hook?
Never underestimate the Fed's ability to let a good crisis go to waste. We have written a lot about recent policy mistakes by the Fed/Treasury and it would appear they just can't help themselves. This week's musings is inspired by arguably the greatest golf tournament which happens to be going on this week - The Masters.
Here are some interesting facts about the famous golf tournament:
The course, Augusta National, was originally acquired by famous golfer Bobby Jones after he won his grand slam in 1930.
The first Masters was played 4 years later in 1934 and won by Horton Smith who finished -4.
The famous Green Jacket was originally worn only by members as a way to help non-members ask questions or directions if they were lost. The first Green Jacket awarded wasn't until 1949 to Sam Snead.
Some of the famous scenes in the collage to the right include Tiger's first win in 1997, making him the youngest (21) and 1st African-American to ever win the tournament; Jack Nicklaus' win in 1986 making him the oldest (46) to win and awarding him his 6th victory (record); Bubba Watson's blind shot off the pine needles en route to his first Green Jacket in 2012; and Phil Mickelson's first Green Jacket in 2004 with a birdie put for the win on the final hole.
Like the windings and drama of The Masters, markets are just as entertaining and, in some cases, harrowing.
Here's what we've seen so far this week...
Amen Corner. At Augusta, holes 11, 12, and 13 are affectionately known as "Amen Corner." The name comes from the fact that those holes are known as three of the toughest holes in the Masters tournament and visions of victory are either won or lost on those holes. The name was penned by Herbert Wind in an article he wrote in Sports Illustrated about Arnold Palmer's first Master's victory in which he won by his play on those three holes.
Markets are on delicate ground now as it seems the next several weeks could make or break the year. The Jobs Report for March was released this morning, albeit when the market is closed for Good Friday. However, already this week, we've received some soft data on the labor market. The JOLTs report on Job Openings was lower than expected for February and was the lowest number of jobs available since July of 2021. On Wednesday, the ADP Private Jobs report disappointed, although, that report has disappointed in 3 of the last 5 months. Then, yesterday, Initial Jobless Claims and Continuing Claims were higher than expected.
According to Goldman Sachs, this had more to do with "seasonal adjustments" rather than "a sharp jump in the true pace of claims." It is notable that Job Cuts have risen over the past few months. However, this morning's Jobs Report showed a still resilient labor market. Though March's number was just slightly below expectations (+236k vs +239k), February's strong report (+311k) was revised higher to +326k jobs. On top of that, the Unemployment rate in March ticked lower to 3.5% versus 3.6% in February. While the Redbook Sales were higher this week, there was additional data that the consumer pulled back during the most recent Banking Crisis. Factory Orders were down and Vehicle Sales were flat. This could indicate that larger, more expensive items are not in high demand. Construction Spending was lower in February. We'll get a better picture later today when Consumer Credit for February is released. It is expected to have rebounded from January's disappointing numbers.
Not For Amateurs. The Masters is unique among professional golf tournaments in that the tournament allows for a handful of Amateurs to play, assuming they meet certain qualifications. No amateur has ever won the masters, although Ken Venturi led the field throughout the tournament in 1956. He lost, unfortunately, by one stroke in the final round. This year, Amateur Sam Bennett is holding his own as he's only a few strokes off the leader so far. It would be really interesting if he could hang around to complete in the final round. Markets are similar - amateurs are welcome to participate, but it takes a professional to guide amateurs through the winding fairways and treacherous greens that make up the investing world.
There is enough good news in the marketplace that gives one hope, despite a Fed that is doing everything it can to create uncertainty. While manufacturing and services data disappointed this week, recent trends indicate improvement in both areas. The March reading for Manufacturing PMI was lower than expected, but the highest reading in 5 months. Similarly, the Services PMI was less than expected but also the highest reading since the middle of last year.
The VIX continues to settle lower and is still below the 50-day moving average and well below the 200-day moving average. The next test will be to see if it can exceed the low set on February 2nd. The SKEW Index, which unlike the VIX, measures "tail risk" has declined since the beginning of the Banking Crisis just over three weeks ago. While there are disappointing economic data occasionally, markets have yet to sell off considerably.
This week has been more of a pause - no thanks to the Fed.
This week, the Fed's Mester picked up where the Fed left off prior to the Banking Crisis. On Tuesday he stated that the Fed will need to get rates up "a little bit more." Obviously hawkish given the current level of market uncertainty. Then, on Wednesday he stated that it is, "too soon to day whether the Fed will raise rates in May." Come on...did the Fed not learn anything from hawkish/dovish speech leading up to the SVB collapse?! Markets do not like uncertainty, which is exactly why futures are 50:50 on no rate hike versus 25 bps rate hike and have hovered back and forth between the two all week. More games from our fearless financial leaders.
There's Only One Green Jacket. An interesting note of trivia about The Masters - multiple winners only receive one jacket, instead of a jacket for each victory. The current state of the markets feels similar to 2012 and 2018 when equities were down and economic data was wavering, but overall, the economy was on solid footing. The recent Banking Crisis added an element to the mix that we didn't need, but that doesn't necessarily equate to an imminent recession. Clients need reassurance that while some headlines (which could be politically motivated) point to an imminent recession, few are able to actually predict one. Staying invested is the best philosophy, until it isn't. Those that panicked in 2012 gave up more than 200% in potential equity returns over the next few years that followed. Those that panicked in 2018 gave up more than 100% in potential equity returns. They don't give out Green Jackets at The Masters to golfers who panic in Amen Corner. Best advice - stick to your financial plan and adjust accordingly only when needed.
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