A Nothing Day While We Wait For The Fed (Technically Speaking For 5/3)
Summary
- The Fed will likely tighten too much.
- U.S. manufacturing is still growing.
- The markets moved sideways in anticipation of the Fed.
Tzido/iStock via Getty Images
Will the Fed make a mistake and tighten too much? One former Fed vice-president thinks so:
“A recession at this stage is almost inevitable,” former Fed vice chair Roger Ferguson told CNBC’s “Squawk Box” in a Monday interview. “It’s a witch’s brew, and the probability of a recession I think is unfortunately very, very high because their tool is crude and all they can control is aggregate demand.”
The Fed has a very bad track record when it comes to engineering soft landings. In fact, they've only done it once since the end of WWII. Here's a list of the problems that are outside of the Fed's hands:
- Global supply chains
- The war in Ukraine
- The Chinese lockdowns
- Oil prices
- Other commodity prices
- The financial markets
Overall, it doesn't look too promising.
The U.S. manufacturing sector is still growing:
Fiore continues, “The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment. In April, progress slowed in solving labor shortage problems at all tiers of the supply chain. Panelists reported higher rates of quits compared to previous months, with fewer panelists reporting improvement in meeting head-count targets. April saw a slight easing of prices expansion, but instability in global energy markets continues. Surcharge increase activity across all industry sectors continues. Panel sentiment remained strongly optimistic regarding demand, though the three positive growth comments for every cautious comment was down from March’s ratio of 6-to-1, Panelists continue to note supply chain and pricing issues as their biggest concerns.
The report's content really hasn't changed much in the last year or so (the author has written permission to use the latest month's report).
The Amazon indicator pointing toward slower price increases:
If you want to blame one company for the surge in inflation over the past year, blame Amazon. When e-commerce demand leaped at the onset of the pandemic in 2020, the retailer decided to expand capacity to meet higher growth forecasts. Then, when the labor market started tightening a year ago, Amazon pressed ahead, paying whatever it took to build more fulfillment centers, buy more trucks, and hire more drivers and distribution center workers.
On the most recent quarterly earnings conference call on Thursday, the company announced it has now built out the capacity it needed. It is even overstaffed with excess warehouse capacity, and plans to pull back on hiring and investing in the short term while it waits for demand to catch up.
No, I hadn't heard of it until today, either. But it does make some sense.
Let's take a look at the charts:
1-day SPY, QQQ, DIA, anf IWM (Stockcharts)
All of the markets moved sideways today, which shouldn't be a surprise since tomorrow is Fed day.
Expect more sideways until right before the announcement.
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