To The Moon

Last trading day of the week. Yay ! We survived another week.

It is slightly less than 2 weeks to go before we bid “May” goodbye.

Not much time “left” for US Congress (in agreement with Biden Administration) to approve the plan to lift the Debt Limit target and by what quantum.

18 May 2023 News update by House Speaker

Based on the latest socialization (see above) by House Speaker Kevin McCarthy to the media, it seems like there have been “some form” of progress made after Tue, 16 May 2023 discussion with President Biden & VP Kamala Harris.

The Harbinger of “good” news led market to stage another day of rally although not as “infectious” as Wed, 17 May.

Nevertheless still a “valiant” effort with Nasdaq index the “best” performer of the day gaining +188.27 (+1.59%) to 12,688.84. This was followed by S&P 500 Index and then finally Dow Jones index.

As we head into Friday’s trading in less than 5 hours, it looks like (for now) the US market is poised to close off the week on a 3rd day “high” if it could help it.

Of course, I do wish for the US market to trend higher instead of lower. Who would want it the other way round really?

Unfortunately, there are 3 pointers that are holding me back from celebrating.

(1) US Weekly Jobless Claims.

Weekly US Jobless Claims for week ending 13 May 2023

• For week ending 13 May 2023, only 242,000 claims were filed.

• This is down by -22,000 claims from last week 264,000 claims; that was incidentally an 18-mth high.

• Simply put, the labour market is still tight and no let up is in sight; despite reporting that $Meta Platforms, Inc.(META)$ is about to execute another round of layoff.

• This will definitely be some jarring noise to the Fed who are still monitoring whether there is a need for further hike during the Jun,2023 FOMC meeting.

(2) Fed Officials Socialization.

The upcoming FOMC meeting will be held on June, 14-15.

The Fed officials have been working the grounds “freely” expressing themselves on the latest (a) inflation rate and (b) possibility of further interest hike.

So far, there is :

• 1 of 3 in favour of a tentative pause

• 2 of 3 in favour of another 0.25% hike.

Fed official - Philip Jefferson - Pause!

Fed official - Lorie Logan - Hike.

Fed official - James Bullard - Hike.

Will it be a case of majority rules, or will the greater common sense prevail?

The US Central Bank cannot and should not further leverage on interest hike to “forcefully” bring down inflation without the attached consequences on the local US community and the global economy on a bigger scale..

(3) Mr Jerome Powell Speech on 19 May 2023.

• There is a mix of anticipation and fear on what Mr Powell will say as he participates in a discussion entitled “Perspectives on Monetary Policy”.

• This is because the market will take the lead from his speech; “twist” it a bit and run with it for the rest of the day.

Continuing from my yesterday post of Top 3 Stocks To Exit In a US Debt Limit Meltdown (click to read and give a “LIKe”- tks); I like to do a more “optimistic” piece in contrast.

After observing the past 2 days’ rally, I believe if an agreement could be signed off before the 01 Jun, X-date deadline, a rally may just well be plausible as investors breathe a sigh of relief and reduce their demand for safe assets like Treasury bonds.

Rally - How Long?

I know, the above is the next logical question to ask.

After pondering, I think the answer depends on the followings:

• Details of the agreement between Congress and Biden administration.

• How the agreement will affect (a) fiscal outlook & (b) economic growth prospects

• Could also be related to the followings - (c) ongoing inflation, (d) monetary policy, and (e) global events.

The rally could last for several weeks or even months, as the above factors play out.

Investment Sectors ?

When euphoria sets in, I think the Top 3 sectors to focus would be those exposed to (i) domestic demand and (ii) consumer confidence:

• Consumer defensive - $Wal-Mart(WMT)$. Largest retailer in US, that has a diversified portfolio of products & services that cater to different income groups and consumer preferences.

• Food Industry - $Starbucks(SBUX)$. This US global coffee chain has a loyal customer base and a strong brand equity that allows it to charge premium prices and generate high margins.

• Financial - $JPMorgan Chase(JPM)$. US largest international bank that provides a range of financial products and services to individuals, businesses, and institutions. With its recent 100% acquisition of $First Republic Bank(FRC)$ assets; it is poised to scale even higher when the financial maelstrom eventually settles, everyone forgets and move on with their lives.

• Do you think US market will stage a rally if the Debt Limit crisis is averted ?

• Do you think there are other gems to be mined if a rally takes off ?

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