Spring Training… For Wednesday: Federal Reserve Minutes

Federal Reserve

My daughter took as much interest in baseball as I prefer to take in politics: Little. Despite having seats right behind the dugout, Amelia wasn’t too impressed. Instead, she looked at the field, asked who the pitcher was, and requested a hot dog and ice cream. 

That was the end of the conversation about baseball. Then, around the third inning, she asked if we could go home. I looked up at the scoreboard and noticed that our Baltimore Orioles team hadn’t recorded a hit yet. Meanwhile, the Minnesota Twins had recorded six hits, including several doubles and a home run that still hasn’t landed.

I told her: “We’ll go home after the Orioles get a hit.” And so – we waited for three more innings. Then, finally, after a fluke single into left field, we departed. The Orioles finished the day losing 8 to 2… 

Orioles Federal Reserve

How’d they even score two runs… it’s a miracle. Her highlight was riding on a golf cart back to the car. Kids.

Baseball and the Federal Reserve

I have been a Baltimore Orioles and Chicago Cubs fan, with a higher preference for the former. I don’t have much hope that the Orioles will win 62 games this year and avoid another 100-loss season. I’d say that the odds that the Orioles win the World Series are about what the odds are that I’ll become an astronaut. About zero percent. 

But I welcome the season and the distraction. I’ll be watching the Orioles play Tampa on Friday for Opening Day. Before we arrive at Major League Baseball’s Opening Day though, we have a hectic week. That starts with the Federal Reserve on Wednesday. The central bank will release minutes from its March 15-16 meeting, and I couldn’t be more intrigued by this batch. 

On March 16, the markets bottomed out and quickly reversed when Fed Chair Jerome Powell said that the U.S. economy wouldn’t face a recession. Unfortunately, I’m not convinced that he is correct – and I’m putting the odds at 50/50 by Q2 2023. 

But most people don’t care so much about GDP anymore – especially when the government continues to drop money out of the sky. The question is what the Fed will do to the stock market. 

It’s been a solid decade of Fed assistance in pushing stocks to record highs. We had three massive quantitative easing programs in the previous decade, followed by a MONSTER ball drop of $5 trillion in capital from the central bank over the last two years. 

The Federal Reserve’s balance sheet surged from $4 trillion in 2019 to $9 trillion today, thanks to the COVID emergency program. However, it’s important to remember that the Fed did engage in efforts to taper its balance sheet back in 2018. That year, the Federal Reserve cut its balance sheet from about $4.5 trillion to under $4 trillion.

That’s our only dataset around tapering, and it wasn’t good news for the market. We had a massive selloff at the end of 2018, the most negative market momentum event of the decade.

This time, the balance sheet is twice the size of where it was that year. And we are dealing with generational inflation, a massive supply chain crunch, $100 oil, and a wealth of other negative factors. So the Fed doesn’t just have to thread the needle on its balance sheet, it has to keep the markets from remaining calm. 

The momentum is green, and we’re still dancing while the music plays. But I’m the type of person who will dance much closer to the doors this week so that I can be the first person out if the jitters prompt a selloff. 

A Canary

I receive a lot of questions about every sector. However, automotive has stuck out over the last few weeks. After a huge run for auto stocks in 2021, concerns about the semiconductor crunch are starting to emerge again. 

And that is weighing on the sector’s sales. On Monday, Ford Motor (F) announced that its March sales had dropped 25.6%. This feels like the beginning of something. If this gets weaker, I’m thinking about being contrarian and buying. This company’s EV focus will be significant and boost free cash flow in the future. It’s doing well in that segment, despite rising costs. We’ll discuss the component sector in the weeks ahead.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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