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Fed Adds to Balance Sheet to Aid Banks; FedEx Mixed in Q3
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The markets’ fortunes changed for the better today, after wallowing in negative territory at the open and for much of the morning. The Dow and S&P 500 closed at session highs, while all four major indices climbed higher than +1% on the day. The Dow finished +374 points, +1.18%, while the Nasdaq gained +283 points, or +2.48%. That was the clear index winner today. The S&P, which is on-track for its strongest week since January, grew +1.78% while the small-cap Russell 2000 was up +1.44%.
What gained traction as of around 11am or so today was the report that $30 billion in deposits from a group of banks was going toward keeping troubled wealth management services firm First Republic Bank solvent. This action showed that not all banks were feeling the strain as those which experienced failures over the past week, and that means exist so that a full-scale bailout like the one we saw nearly a decade and a half ago would appear to be unnecessary from this vista. (However, the +10% gains FRC saw in today’s regular session have been given away and then some: the stock is -20% in after-hours trading.)
Next week’s Fed meeting will in all likelihood either keep the Fed funds rate between 4.50-4.75% or raise 25 basis points to bring the top end of the range to 5% for the first time since 2007. Yet for the first time in recent memory, what happens at the Fed is not as important as what’s going on in certain areas in the market.
For instance, since the Fed began raising interest rates and started draining its $8.97 trillion balance sheet, we’ve seen both a curbing of inflation metrics and a drying up of assets that were bought back during the Covid pandemic to backstop liquidity. We’ve risen 450 basis points (bps) on the Fed funds rate and trimmed the balance sheet somewhat, to $8.34 trillion as of last month. Yet just today, the Fed added $297 billion in new lending assets to assist these banks that are or may yet see difficult times ahead (through bridge loans, etc.). It’s as yet unknown how many banks will ultimately be affected by these financial shock waves.
The point here is that the Fed is wasting no time in making accommodative measures available, in order to deter another financial crisis. The tricky aspect now, as compared to when pandemic challenges hit three years ago, is that the Fed is also trying to keep inflation from creeping back, as we saw in the mid-to-late 1970s. That nightmare scenario took the Fed funds rate up near 20%; they’d have killed for the 5% on which we’re currently on the precipice.
Existing as it does between general earnings seasons, FedEx (FDX - Free Report) has reported fiscal Q3 numbers after the bell today: earnings of $3.41 per share swept past the $2.67 in the Zacks consensus for a +28% positive earnings surprise, on $22.17 billion in sales that came up short of the $22.64 billion expected. This is the second-straight earnings beat after missing in three of the previous four quarters. FedEx’s combination of raising prices and aggressively cutting costs has augmented continued demand weakness. Shares are +9% in late trading.
Image: Bigstock
Fed Adds to Balance Sheet to Aid Banks; FedEx Mixed in Q3
The markets’ fortunes changed for the better today, after wallowing in negative territory at the open and for much of the morning. The Dow and S&P 500 closed at session highs, while all four major indices climbed higher than +1% on the day. The Dow finished +374 points, +1.18%, while the Nasdaq gained +283 points, or +2.48%. That was the clear index winner today. The S&P, which is on-track for its strongest week since January, grew +1.78% while the small-cap Russell 2000 was up +1.44%.
What gained traction as of around 11am or so today was the report that $30 billion in deposits from a group of banks was going toward keeping troubled wealth management services firm First Republic Bank solvent. This action showed that not all banks were feeling the strain as those which experienced failures over the past week, and that means exist so that a full-scale bailout like the one we saw nearly a decade and a half ago would appear to be unnecessary from this vista. (However, the +10% gains FRC saw in today’s regular session have been given away and then some: the stock is -20% in after-hours trading.)
Next week’s Fed meeting will in all likelihood either keep the Fed funds rate between 4.50-4.75% or raise 25 basis points to bring the top end of the range to 5% for the first time since 2007. Yet for the first time in recent memory, what happens at the Fed is not as important as what’s going on in certain areas in the market.
For instance, since the Fed began raising interest rates and started draining its $8.97 trillion balance sheet, we’ve seen both a curbing of inflation metrics and a drying up of assets that were bought back during the Covid pandemic to backstop liquidity. We’ve risen 450 basis points (bps) on the Fed funds rate and trimmed the balance sheet somewhat, to $8.34 trillion as of last month. Yet just today, the Fed added $297 billion in new lending assets to assist these banks that are or may yet see difficult times ahead (through bridge loans, etc.). It’s as yet unknown how many banks will ultimately be affected by these financial shock waves.
The point here is that the Fed is wasting no time in making accommodative measures available, in order to deter another financial crisis. The tricky aspect now, as compared to when pandemic challenges hit three years ago, is that the Fed is also trying to keep inflation from creeping back, as we saw in the mid-to-late 1970s. That nightmare scenario took the Fed funds rate up near 20%; they’d have killed for the 5% on which we’re currently on the precipice.
Existing as it does between general earnings seasons, FedEx (FDX - Free Report) has reported fiscal Q3 numbers after the bell today: earnings of $3.41 per share swept past the $2.67 in the Zacks consensus for a +28% positive earnings surprise, on $22.17 billion in sales that came up short of the $22.64 billion expected. This is the second-straight earnings beat after missing in three of the previous four quarters. FedEx’s combination of raising prices and aggressively cutting costs has augmented continued demand weakness. Shares are +9% in late trading.
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