CHRIS VERSACE: Good morning, Action Alerts Plus members. With every talking head in the business guessing what the Fed is likely to do tomorrow, instead of giving you my guess, I wanted to spend today digging through the data that the Fed will be looking at as it decides what's ahead for monetary policy. And I want to do this to give you a clearer look at how we've prepared the portfolio for any potential outcome.

Now, from the recent CPI to PPI data, the data has been coming in largely as expected. But what caught my eye last week was the sequential month-over-month increase in the core CPI data. I know I touched on this in an alert with members last week, but very quickly, we saw the February core CPI increase 0.5% month-over-month. The January CPI for core was up 0.4%, and the November to December, again, core CPI reading was up 0.2% to 0.3%.

Clearly, that is moving in the wrong direction for what the Fed wants to see. And as we shared in our analysis of last week's February PPI report, data for the services sector was not only elevated, at 6% year-over-year, it's still quite a distance away from the Fed's 2% target. Moreover, it's only showed modest progress since peaking just a few months ago. These, in my opinion, are simply data points the Fed can't ignore as it contemplates what's next for monetary policy.

But, as we are all aware, recent issues in the banking sector have shifted the narrative around what the market sees the Fed doing, even though we are seeing some positive developments emerge yesterday and today on those banking issues, such as JP Morgan working with First Republic on strategic alternatives and the Treasury studying the ways they might temporarily expand FDIC coverage to all deposits. As of now, the market is still banking on rate cuts depicted by the CME FedWatch Tool.

Let's take a closer look-- excuse me-- at the FedWatch Tool. Now, we have seen the probability shift around a little bit in the last 24 hours, and yes, they could shift even further if the market is convinced we've seen the worst of the banking situation move past us. But as of this morning, the tool shows the Fed increasing the Fed funds rate by 25 basis points after tomorrow's meeting and another 25 basis points at the May meeting.

But it is still showing back-to-back Fed rate cuts exiting the June and July policy meetings. As I discussed with you just now, based on what we've seen of late in the data, we would call that a rather hopium-filled scenario, especially because, even if the Fed slows the pace of rate hikes, it is still going to keep the Fed funds rate at elevated levels for a prolonged period of time as part of its plan to get inflation back to its target levels.

Let's look at the data again real quick, just to hammer it home. The February headline CPI was up 6% year-over-year, and the core CPI reading was up 5.5% year-over-year in February. Again, still a very, very long way away from that 2% target. Now, looking at all of that, our concern is we could see Powell deliver a bitter pill to the market tomorrow.

And as I shared in my opening comments with you this morning, we've seen this happen a number of times over the last several quarters, and typically, it doesn't go well with the market. Now, are we braced for that with the portfolio? Yes. Yes, we are. We have our cash levels and our inverse ETFs as well.

Now, we've gotten some member questions of late about those inverse ETFs, better known as SH and PSQ, so let's take a second to look at these two. Originally, when we first added them to the portfolio several months ago, we did so using them as tactical tools. Why? Well, we wanted them to help blunt the market volatility, but also protect the portfolio given concerns we had about the overall market, the economy, and 2023 earnings expectations.

Currently, the S&P 500 is around 3,950, and, as we know, it's been trading in a range between 3,700 and 4,200 for their last several months. In our opinion, should the S&P move past 4,100, it could be a place to add more inverse ETF exposure. But that decision will hinge on what we're seeing with the economy, earnings, and monetary policy should the S&P 500 get there.

For now, members, you should hold off adding to those inverse ETF positions. And as we get ready for Fed Wednesday tomorrow, I would share that bullpen resident Ferrari has joined an expanding club of companies that have been hacked. Was consumer data compromised? Yes, it was.

And it simply goes to show something that we've been sharing with you-- plain and simple, cyber attackers don't care about monetary policy, the economy, corporate earnings, or other things that move the stock market. Rather, they are looking to exploit companies and monetize what they can. As we see it, this is simply a sobering reminder of why companies will continue to spend on cybersecurity, and this keeps us bullish on the portfolio's position in cyber shares.

That'll do it for today's rundown. JD and I will be back tomorrow to answer some of your biggest and most burning questions. Thanks for watching.