On the QT

By Jeffrey Cane|  Wednesday, April 6 The Tighten Up. Quantitative tightening may be arriving earlier and harder than many had expected -- and the stock market seems OK with that for the moment. Stocks ended lower today for a second-consecutive session, but they were well off the lows reached just after the Federal Reserve's 2 p.m. release of  the minutes from its policy meeting in mid-March.   The prospect of a quicker tightening cycle is certainly high on investors' list of worries. But it is a long list: the war in Ukraine, higher inflation, slowing economic growth, and an uncertain earnings season just around the corner. In any case, yesterday's surprisingly hawkish speech from Fed Governor Lael Brainard braced investors for another body blow. So the minutes may have come as something of a relief.  In those minutes, the Fed indicated that it could soon begin shrinking its balance sheet by roughly $95 billion a month (about $60 billion in Treasury securities and $35 billion in mortgage-backed securities).  The minutes also showed that half-point increases in interest rates are clearly on the table, and that market participants have paid attention to the Fed's earlier signals of aggressive moves: Many participants noted that one or more 50 basis point increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified. A number of participants noted that the committee’s previous communications had already contributed to a tightening of financial conditions, as evident in the notable increase in longer-term interest rates over recent months. "Another very hawkish readout indicates the Fed is willing to walk the walk," said Sean Bandazian, an analyst with Cornerstone Wealth Group. "Clearly they’re sending all the smoke signals of the most aggressive tightening cycle in a generation." Lisa Beilfuss of Barron's has more on the Fed minutes here.  The recent reassessment of the Fed's hawkish shift has been most evident in the bond market. Today, the action was in the long end of the Treasury curve. The benchmark 10-year yield climbed to 2.61%, its highest since March 2019, while the yield on the 30-year bond rose to 2.63%, its highest since July 2019. The yield on the two-year note, among the most sensitive of the Treasuries to market expectations over interest rates, was little changed, at 2.5%. Still, the prospect of higher interest rates tends to weigh heavily on growth stocks and tech, and that was the case today. The tech-heavy Nasdaq Composite ended down 2.2%. The FAANG stocks were toothless: Meta Platforms, the former Facebook (down 3.7%), Amazon.com (down 3.2%), Apple (down 2.9%), Netflix (down 3.1%), and Alphabet, formerly Google (down 2.9%). Nvidia slumped 5.9%; Datadog slid 6.6%. Salesforce.com dropped 4.4%.  Tesla ended down 4.2%. Elon Musk's latest company of interest, Twitter, eased off 0.4% after its recent rocket ride. The S&P 500 closed down nearly 1%. Leisure were the laggards: Norwegian Cruise Line Holdings (down 6.8%), Penn National Gaming (down 6.7%), and Caesars Entertainment (down 6.7%).  Defensive plays were the big winners. The S&P 500 utilities sector gained 2%.  Walmart, whose shares began trading on the New York Stock Exchange in August 1972 -- also a time of war, inflation, and uncertainty -- closed at an all-time today. Its shares surged 2%, to $154.99, its first record close since November 2020.

 

DJIA: -0.42% to 34,496.51 S&P 500: -0.97% to 4,481.15 Nasdaq: -2.22% to 13,888.82 The Hot Stock: Eli Lilly +4.6% The Biggest Loser: Norwegian Cruise Line Holdings -6.8% Best Sector:  Utilities +2% Worst Sector: Consumer Discretionary -2.6%