Daily Rundown: September 21

BOB LANG: Good morning, Action Alerts Plus members. It's Wednesday, September 21, 2022, or, as what we like to call it, Fed Day. So we'll be talking about the Fed a little bit in a bit. So we have quite a bit to cover. So let's get going here. Markets are up a little bit this morning, tiny bit, from yesterday's drop. Oscillators, which is what I follow every single day, are modestly oversold here. So it's not really a surprise that we get a little bit of a rally here.

We could expect a bounce, even a large bounce, at any time, though. So working off some of this oversold reading kind of makes sense, especially leading into the Fed meeting. The NASDAQ and the S&P 500 oscillators were at minus 200, which is, again, moderately oversold on the oscillators. So if the markets do rise up, we're just going to burn off some of that oversold reading. But we just don't think that this downturn is over. And we think any bounce is just going to be modest, to say the least.

Volatility, of course, is lower a little bit this morning. And we see the S&P 500 has broken below the 3,900 level, and it closed below there yesterday. It's kind of flirting with it today. We'll see if it makes a run past 3,900. That's key level. We've been talking about it recently. If we cannot get a move above that 3,900 level, though, however, we do see some more downside. And eventually, a test or a retest of that June low comes in at about 3,640, and possibly even lower than that.

So fear, as measured by the VIX, of course, is down, again, as I mentioned a little bit today, as usual on a Fed day. And why is that? Because the VIX rises due to uncertainty in the air. So once this Fed meeting is over, then we remove that uncertainty and market players are free to trade the markets as they wish, whether it's up or whether it's down. Again, if we're oversold, we might see markets moving a little bit higher, regardless of what the Fed has to say today.

So moving to the Fed, the big day has arrived. A lot of people have been expecting and waiting for this day to come. And again, tomorrow, it'll be over. But today, at 2:00 PM, the Fed's statement is going to be released. And at 2:30 PM, the press conference with Chair Powell and a whole bunch of economists and media members will begin. We expect rates to rise about 75 basis points from 2 and 1/4% currently right now to 3% on the funds rate to make that adjustment.

However, there is a small chance, about a 20% chance, of a 100 basis point rate hike, and that would bring the funds rate up to 3 and 1/4%. I think that most people would be a little bit shocked and stunned by that and it'd be a big time surprise. However, I think the markets can be very unpredictable in how they respond and react to the news and the information presented. And oftentimes, that first move, which could be up, is often the wrong one. It might be the following day that shows us what the real move, what the real thoughts of the markets are going to be.

We could see a move in the opposite direction, of course, today if players are not happy the statement and with the bold move by the Fed. I'll be reading through their new projections later on today very carefully to see if there's any adjustments, upward or downward, in GDP, inflation, unemployment, and the Fed funds in 2023 and beyond. This may have a much greater impact than what the markets are telling us when the Fed makes their move on interest rates today.

I'll be listening to clues for monetary policy from Fed Chair Powell during his press conference and the impact of the current rate hike cycle on inflation and growth. Chair Powell is likely to talk about the reduction of the balance sheet, which has been happening since the summertime. But it really stepped up starting in September to about $95 billion of bond sales each month.

It is acting as a pull of liquidity against the markets, and equity markets are going to feel it over time. It's had a real negative effect, actually, since the July lows. And even so, that volatility has not ratcheted up because market players are expecting this big drain on liquidity in the markets.

So yesterday, we made a couple of moves. We sold off the rest of our Morgan Stanley. And we added a new name called Elevance Health just after the market opened yesterday. As for Morgan Stanley, we reduced the position recently, and we're looking for a spot to exit it altogether. Yesterday was the day. The prospects for the company and other banks seems to be lower down the road. So we felt that this was the right time and the right moment to go ahead and exit the name.

Now, Elevance is a new name that we picked up yesterday. ELV is the symbol. This is a former name called Anthem. And prior to that, it was WellPoint. So Elevance is an ideal name for the AAP portfolio, we believe, in this bear market environment. It's a defensive name with strong cash flows, strengthening membership, low payout rates, and a modest dividend and strong buyback program. So it really has the combination of increasing value for shareholders.

The chart shows that the stock has pulled back once again to the 200-day moving average. It's been there quite a few times. Over the past couple of months, it's been in a nice area for the stock to bounce. The weekly chart is actually a thing of beauty, if you look at it, with a series of higher highs and higher lows, strong volume. And all the technical indicators are lining up in the bullish camp on that. So I'll have a chart for you on Elevance a little bit later on today. So look for that in your mailbox.

That'll be it. Also, we may be doing a little Fed post-mortem after the Fed meeting today. So look for that. We could be spending a little bit of time with you talking about what the Fed decision means for Action Alerts Plus and the portfolio and for the economy in general. That's going to be it. Have a great day, everyone. And we'll see you on Thursday.