Daily Rundown: March 29

CHRIS VERSACE: Good morning, "Action Alerts Plus" members. All eyes remain on the big banks after yesterday's Senate committee hearing concerning the collapse of Silicon Valley Bank. Now, as I wrote in my alert to you about all of this, this was largely saber rattling with Fed Vice Chair for Supervision Michael Barr largely blaming Silicon Valley Bank for not effectively managing its interest rate and liquidity risks.

Candidly, this outcome in Washington, not much of a surprise. But let's remember, as much as these events in Washington are about investigating and getting to the underlying issues, they are also a time for elected officials to shine for the camera. Color me, I don't know, a little bit jaded. But at the end of the day, the banking system we have remains strong. And we have to remember it has formidable backing.

Now against that backdrop, we scooped up more shares of Bank of America late last week and again earlier this week. And as you know, in my opinion, the next focal point for the banking sector will be March quarter bank earnings. Yes, we will want to see what they have to say about their businesses, of course. But as I've pointed out recently, those reports and guidance will help us better understand the potential headwind that tighter credit poses for the economy.

Now, remember, the market is thinking tighter credit will be the equivalent of a Fed rate hike. By the time banks report their quarterly results, we're hoping to have an idea, however, as to how much or how big of a rate hike it will equate to. I've said before, some are thinking 25 basis points. Others are thinking far more.

But as we move past that conjecture and get a better sense of what it might actually be, we'll want to be watching the Fed fund futures. They've continued to shift around over the last few days. But as of now, the market continues to price in a pause at the Fed's March meeting and a few rate cuts in the back half of the year. Now, I got a little distracted with that.

So let's get back on track to the hearings in DC that I mentioned. In my view, they indeed are having simply just more bark than bite. What does tend to have more bite, however, is the latest economic data. And that brings us to yesterday's Consumer Confidence Report.

The data for March was stronger than expected. But as I shared in my note to you, we have to consider the timing of when that data was collected. For this March report, the cutoff date was March 20th. That's just a little over a week after the recent bank failures occurred. Given that timing, my concern is it may not fully reflect the sentiment changes because those recent bank failures and the efforts to shore them up made big headlines in the following days.

Now, as I often say, context and multiple data points are key to understanding what is really unfolding. With that in mind, we are going to look for a clearer picture of consumer sentiment once we have the April data in hand. And of course, members, we can't be talking about economic data for the week without touching on Friday's February Core PCE Data, which as we all know, is a favorite when it's talking about the Fed-- excuse me-- and it comes to inflation.

Now, the backdrop here is that the market's comfort with the banking sector continues to improve. As that happens, it's going to focus back on inflation and monetary policy. Something candidly we're already starting to see happen. So what's the consensus view for the February Core PCE Data?

Well, on a year-over-year basis, it's expected to remain unchanged. That's right, clocking in at around 4.7% in February, the same as January. On a month-over-month basis, it is expected to slow to an increase of 0.4% compared to 0.6% in January. Now, again, that's the consensus.

But based on what we've shared with you about the February CPI and PPI data, there is a good probability that some of that data comes in hotter than expected. That would be a surprise to the market. Now, gaming it out we do have a ways to go until the Fed meeting in May. And candidly, a lot more data to be had as well.

But a warmer than expected February Core PCE Report may start to jump start the revisiting of the market about what's ahead for monetary policy and interest rates. And we would candidly call out that there's a big difference between the Fed simply pausing and cutting rates. If the market has to rethink the multiple rate cuts that it's currently expecting in the back half of 2023, anything less than that will mean yet another rethink is needed.

Now, let's get back to the very near term. So when the February PCE Report is published on Friday, we will be sharing our thoughts with you, discussing, of course, what it means not only for the market, but the AAP portfolio. Now, that'll do it for today's rundown. I will be back tomorrow to talk about Micron and a number of other stocks that are catching my attention both in and out of the portfolio.

And please, members, be sure to watch your Alerts for something coming along this afternoon better known as our AAP Podcast for the week. Thanks for watching.