Market Pulse: Fed Meeting Preview and Global Investment Landscape
As we approach the March Federal Reserve meeting, markets are on edge, BAG 7 holders are praying Powell will save them, institutional investors are dumping US equities like they are chlorinated chicken, while at Alphainvestors we are buying Yen, Brazil, German power and Ukraine. Let’s dive into the current state of play and what investors should be watching.
S&P 500: Dancing Around the 200-Day Moving Average
The S&P 500 has been on a rollercoaster ride, recently breaking through its 200-day moving average and touching lows around 4,500. However, we’ve seen a modest bounce, with two consecutive green days for the first time since late February.
This pattern bears a striking resemblance to the market behavior in 2022, suggesting we might be in for a series of bear market rallies. For traders, this could present opportunities, but caution is warranted.
Sector Spotlight: Tech Takes a Hit
The tech sector continues to face headwinds, leading the recent sell-off. Even market darling Nvidia saw a 3.4% drop following its GTC keynote, despite announcing exciting new products. This “buy the rumor, sell the news” reaction underscores the current market sentiment.
Global Shifts: Europe and Emerging Markets in Focus
While the U.S. markets struggle, Europe and Emerging Markets are gaining attention:
- DAX (German Index): Showing a strong uptrend, bolstered by expected approval of a new defense budget.
- RWE (German power company): On the verge of a bullish 20/200 day moving average crossover, well-positioned for Europe’s reindustrialization.
- EWZ (Brazil ETF): Breaking out of a long downtrend, with potential upside tied to upcoming elections.
- CCIR (SPAC for Ukrainian mobile operator): An intriguing play on potential ceasefire in Ukraine, with limited downside due to its $10 floor.
Capital Flows: The Great Rotation
Institutional investors are making moves:
- CTA positioning has turned short on U.S. equities
- Fund managers have cut U.S. equity allocations by 40%, while increasing Europe by 30%
- Approximately $13 billion in U.S. equities were sold by institutions last week
- The strengthening Euro suggests repatriation of assets
This shift is creating opportunities in previously unloved markets and sectors.
Fed Meeting Preview: What to Expect
All eyes are on the Federal Reserve as they convene for their March meeting. Here’s what to watch for:
Interest Rates: Holding Steady
No change in interest rates is expected, with the Fed likely to maintain its current stance.
Economic Projections: A Cloudier Outlook
The Summary of Economic Projections is likely to show:
- Downward revision to growth forecasts
- Upward revision to inflation expectations
- Possible slight increase in employment projections
- No change in the dot plot for 2025, but potential uptick in the longer-run median dot
Statement and Press Conference: Reading Between the Lines
Watch for:
- Changes in language reflecting a worsening outlook for growth and inflation
- Continued emphasis on labor market strength
- Careful avoidance of direct comments on trade policy or tariffs
Fed Chair Powell is expected to maintain a balanced approach, avoiding strong statements on contentious issues.
Investment Themes to Watch
1. Gold’s Persistent Shine
Gold continues its upward trend, with Goldman Sachs forecasting increased demand.
Despite hitting nominal all-time highs, gold prices in real terms are just breaking out of long-term ranges.
2. U.S. Regional Banks: Value Play?
The KBE (U.S. Regional Banks ETF) looks attractive after recent sell-offs. Any indication of the Fed stepping back from Quantitative Tightening could provide a boost to the financial sector.
3. China and Emerging Markets
Selectively buying Chinese stocks and increasing exposure to emerging markets could be a smart play, as both regions benefit from fiscal stimulus measures.
4. European Reindustrialization
Companies poised to benefit from Europe’s push towards reindustrialization and increased defense spending warrant attention.
Key Dates and Events
Mark your calendars:
- Today: Fed meeting outcome and press conference (7 PM European time)
- April 2nd: Critical date for tariff developments, including potential implementation of Chinese tariffs and announcements on reciprocal measures
Conclusion: Navigating Uncertainty
The market remains in a “sell the rally” mode, with significant uncertainty stemming from trade policy and economic growth concerns. While we haven’t seen a true capitulation day, the slow reallocation of capital might mean we don’t need one.
For investors, the key takeaways are:
- Stay nimble and be prepared for potential bear market rallies
- Consider reducing overexposure to U.S. tech stocks on bounces
- Look for opportunities in Europe, Emerging Markets, and commodities
- Keep a close eye on the Fed’s economic projections and their market impact
- Prepare for potential volatility around the April 2nd tariff deadline
As always, maintain a diversified portfolio and adjust your strategy as new information emerges. The coming weeks promise to be eventful for global markets.
