View from 5th Avenue

The View at Two – 28th April, 2021

Straight Face… Of course the impending FOMC decision had plenty to do with the lack of real action this morning (MVOLUSE -42%). No surprises were expected, but with such an intense focus on "parsing" Powell's words for ANY change in tapering tone, yields pushed higher just in case. Turns out, there was no need. Drumroll please…CRICKETS. Fed headlines revealed ABSOLUTELY NOTHING new. Powell’s words did mention a “strengthening economy” which was sliggghtly more aggressive in tone than his last “turned up.” Semantics really, but maybe a set up for September? Either way, treasuries were hit and stocks basically remained as they were – flat. In the meantime, plenty of action in the earnings space, though a distinct lack of enthusiasm (see more below). Looking at the S&P sectors, ENERGY is outperforming as the “forgotten rotation” plays catch up. The XLE is up 3.2% led by Hess (+7.4%) whose adjusted EPS beat estimates and Devon (+9%) after a broker upgrade, but also because oil has lagged the commodities move for too long. Speaking of lagging performers, TECH is at the bottom of the sector barrel after the first round of megacap results, despite Alphabet’s (+4.6%) surge in ad sales. It is Microsoft’s (-3%) numbers that just weren’t enough to keep profit takers from stepping in. Elsewhere, Boeing (-2.7%) dropped after burning more cash on the 787 delivery halt and Texas Instruments’ (-4%) sales forecast was less than analysts hoped. With stock valuations about 25% above their 5-year average, good is not good enough. From here, things get a bit more interesting potentially. Another big options bet placed over the last week sees the market's view of rate hikes shifts drastically before Sept (aka something to come from the Jackson Hole symposium in August). With the US recovery on such a blistering pace, the Fed can't keep calling for "substantial further progress" with a straight face for too much longer.

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