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Markets Up Ahead of Fed Decision; Nike & GameStop Beat

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Feeling some cushion between market valuations and pricing in a lower interest rate hike from the Fed than we were expecting not even two full weeks ago, market indices made a forward move ahead of the Fed’s monetary policy report at 2pm ET Wednesday. The Dow gained another 304 points today, +0.94%, while the S&P 500 grew 1.26%. The Nasdaq, now up in six of the past seven trading days, is up +1.53% on the session, and the small-cap Russell 2000 +1.88%.

This bullish reversal follows the fears of contagion in the regional banking industry, which appears at this point to be contained. First Republic Bank , not long ago expected to be the next bank domino to fall, gained +34% on the day. For the past five sessions, the Dow is +2.8%, the S&P +3.8%, the Nasdaq +5.0% and the Russell +2.9%. Expectations are for the Fed to raise interest rates another 25 bps tomorrow, with commentary wrapped in dovish possibilities in the coming months.

It would be too far to expect the Fed to announce when it may pivot to interest rate cuts tomorrow; inflation remains sticky in many aspects of the economy (though we may finally see loosening everywhere in light of the banking struggles), and “higher for longer” has been the Fed’s mantra for months now. Even if the Fed decides to pause here instead of bringing the top end of the range to +5% for the first time in a decade and a half, we don’t expect a new dot-plot depicting any ticks down from here.

Existing Homes Sales in February shot up +14.5% to 4.58 million units, reversing a 12-month downtrend in previously owned homes (condos, townhomes and single-family). Expectations had been for 4.2 million, +9.5% from the previous month’s multi-year low 4.0 million units sold. Prices declined overall by -0.2% to $363K on somewhat moderating mortgage rates. Inventory of existing homes for sale stayed in-line at 980K.

Zacks Rank #2 (Buy)-rated Nike (NKE - Free Report) shares are up +3.5% in after-hours trading on beats on both top and bottom lines in its fiscal Q3 earnings report this afternoon. Earnings of 79 cents per share easily outpaced the 52 cents expected, only slightly down percentage-wise year over year. Revenues of $12.39 billion swooped past the $11.45 billion anticipated. This is the 11th straight quarter Nike has surprised to the upside on earnings results.

Better-than-expected growth in North America and Europe in the quarter demonstrated consistent brand strength, while China’s -8% continues to show weakness as the country continues to scrape toward a post-pandemic economy. Gross Margins came in at +43.3%, slightly lower than the +43.7% estimated. Inventories posted +16% — still up, but well off the +44% reported in the previous quarter, which is a good sign for things to come.

Meme-stock poster child GameStop (GME - Free Report) shares have bolted up +34% on its big beat on fiscal Q4 earnings and sales. The company swung to +16 cents per share from -16 cents expected, while revenues of $2.23 billion outperformed the $2.17 billion in the Zacks consensus. Earnings represent a $48 million profit — especially good for a company that had missed on earnings 7 of the past 12 quarters. Its Collectibles business looks to be firming up.

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