“The most perfect technique is that which is not noticed at all.” — Pablo Casals

Good evening,

The focal point of this week’s trading was the March 19-20 meeting of the Federal Open Market Committee (FOMC). By now, the phrase “dot plot” has essentially become part of the public vernacular, and with markets once again correctly anticipating that the Fed would keep rates unchanged at 5.25%-5.5%, investors zeroed in on the dot plot and Summary Economic Projections (SEP) immediately after the rate decision was announced. 

Markets had been apprehensive heading into the meeting, and Fundstrat Head of Research Tom Lee told clients that, based on the conversations he was having, many investors remained skeptical about equities as an asset class and expected the Fed to turn hawkish on Wednesday. 

However, despite recent hotter-than-expected data, Lee argued that the Fed would acknowledge that inflation was still clearly on a downward trajectory, thus remaining dovish, and he suggested that, once this became clear, pre-meeting sentiment, expectations, and positioning would help spark a rally and recovery. 

This is exactly what happened. The latest SEP showed that members still expect three rate cuts for 2024 (as shown in our Chart of the Week). Markets immediately rallied in response, with the S&P 500 breaking the 5,200 mark for the first time and closing at a new all-time high Wednesday. The index continued to climb on Thursday, breaking the record it set the previous day. 

Lee suggested that markets would come to see this FOMC meeting as confirmation that the Fed remains dovish. Looking forward, he suggested that “once this happens, a lot of things can happen – all of them arguably good for stocks.” Among the potential implications he sees:

• Easing financial conditions
• Expansion of market breadth
• Strengthening consumer confidence
• Improved CEO confidence
• Falling interest and mortgage rates

Lee also pointed out that the technicals appear to be in place for markets to continue rallying, citing the work of Fundstrat Head of Technical Strategy Mark Newton. At our weekly research huddle, Newton elaborated on this: “I hear a lot of people who are saying, ‘the market’s overextended,’ or ‘the market’s overbought’. And it’s true that the S&P 500 has made an extraordinary move, up over 26% since October, but much of that has been large-cap Tech.” 

He continued, “I think many of those skeptics would be surprised to learn that, on an equal-weighted basis, a breakout has literally just started. We’re seeing a broadening out in the market that is actually quite healthy – rotation out of Technology, which has underperformed the last month, into Energy and Materials, and we’ve already seen Financial and Industrials performing well.”

Newton added, “This equal-weighted breakout is actually very constructive for the market. That’s why, in my view, we have to be in the market and not be concerned about how overbought the S&P and QQQ have gotten of late.”

Newton on Tesla (TSLA 3.29% )

“Tesla has been a notable laggard lately, but this week I actually included Tesla in my Upticks stock list for the first time ever. We’ve seen it break short-term downtrends and recapture former lows from February, and that’s technical evidence of a possible bottom. Cars in general should begin to re-emerge after a pretty painful period, and I think that Tesla is a very interesting idea for those who like to buy dips and buy countertrend-type stocks that are at or near lows. For me, technically, it finally has appeal, and it hasn’t for months and months and months.” [Editor’s note: Tesla has been on Tom Lee’s Granny Shots list since 2019.]

Central banks around the world

While this was FOMC week for U.S. investors, many other central banks also made rates decisions this week – among them the central banks of Japan, England, Switzerland, and Turkey. The Bank of England kept rates steady, but outside the U.S., it was the Fed’s counterparts in Japan and Switzerland that made headlines.

The Swiss National Bank became the first national bank to cut rates, down from 1.75% to 1.50%, surprising analysts who had expected the bank to keep rates unchanged until June at the earliest. Commenting on the reasons for the cut, SNB head Thomas Jordan said “the fight against inflation over the past two and a half years has been effective [and] inflation is also likely to remain in this range over the next few years”.

The Bank of Japan moved in another direction, raising rates for the first time in 17 years (from -0.1% to 0%-0.1%). Japan, which had been the only country with negative interest rates, also ended its longstanding policy of yield-curve control – part of an economic strategy known as “Abenomics”. The BoJ’s move came as wages rose in January in real terms and its stock market set new highs. 

Elsewhere 

Apple (AAPL 0.62% ) was hit with an antitrust lawsuit filed by the Department of Justice and 16 state attorneys general, joining a not-so-prestigious club of Big Tech companies like Amazon (AMZN 0.27% ) and Meta (META 0.75% ). In Apple’s case, the company is accused of having used the popularity of its iPhone to engage in anticompetitive behavior against rivals in the digital wallet, text messaging, and smartwatch businesses, among others. The Cupertino company is also facing antitrust investigations outside the U.S.

Nvidia (NVDA 1.04% ) unveiled its latest AI chip, the Blackwell series of GPUs. According to the company, the “superchip” marks a significant advance in both computing power and energy efficiency over its highly coveted H100 chip, thanks in part to improved inter-chip communications capabilities. 

Manufacturing reportedly rose in China in January and February on a YoY basis. The National Bureau of Statistics (NBS) said that industrial output rose 7% during this period. This is the fastest manufacturing growth rate in the past two years, beating expectations of 5.0%. Consumption, as measured by retail sales, rose 5.5% over the same period, above expectations of 5.2%. (China publishes January and February statistics together to mitigate the distortions caused by Lunar New Year-related economic activity.)

A federal judge dismissed criminal stock-manipulation charges filed against seven influencers, who had been accused of running a $100 million pump-and-dump scheme on X/Twitter and Discord, manipulating the prices of so-called “meme stocks” AMC and Gamestop. Similar civil charges related to this matter filed by the SEC remain pending. 

The China Securities Regulatory Commission (CSRC) imposed a CNY 4.175 ($580 million) penalty on a division of ailing property developer Evergrande, alleging that it had inflated revenues by CNY 564.1 billion ($78 billion) – a figure that, if accurate, would make Evergrande a more massive instance of fraud than Enron or Bernard Madoff. Evergrande founder Xu Jiayin was personally fined CNY 47 million ($6.5 million). 

Finland extended its tenure as the happiest country in the world for a seventh year, according to the 140-nation World Happiness Report, while the U.S. dropped below the top 20 for the first time in the report’s history (#23, down from #15 last year). Young people in the U.S. reported a sharp decline in happiness – with the States ranking 62 for those under 30 – while people over 60 ranked the U.S. at No. 10. 

And finally: The iconic $1 slice of New York City pizza is no more, but retiring Costco CFO Richard Galanti said that inflation had yet to defeat his company’s similarly loved $1.50 hot-dog-and-soda combo. Galanti would not guarantee a continuation of the famous deal, but he said, “It’s probably safe for a while.” The price has not changed since 1985.