Research Reports

Stocks bounced back on Wednesday from yesterday's inflation fueled sell-off. Chicago Fed President Goolsbee noted that 'Even if inflation comes in a bit higher for a few months...it would still be consistent with our path back to target.' The Dow was up 0.1%, the S&P rose 0.4%, and the Nasdaq gained 0.7%. Crude oil fell slightly to $77.50 per barrel, while gold fell $2 to $2005 per ounce.

The grip of monetary policy on the U.S. economy appears to be loosening, even though the Federal Open Market Committee is unlikely to cut the fed funds rate next month. The full effect of monetary tightening may have peaked in July according to our analysis of the Proxy Funds Rate, an analytical tool tracked and updated monthly by the Federal Reserve Bank of San Francisco. At the end of January, the rate was 5.8%, compared with the official fed funds target of 5.25%-5.5%. The proxy rate peaked at 7.1% in July. The rate recognizes that central bankers use multiple tools (not just short-term interest rates) to meet their "dual mandate" of stable prices and maximum sustainable employment. The Fed uses forward guidance to communicate the direction of monetary policy and influence longer-term interest rates and broader financial conditions. The Fed also can expand its balance sheet through the large-scale purchase of Treasury and Mortgage Backed Securities, which is known as quantitative easing, or reduce its holdings, which is known as quantitative tightening. The Proxy Funds Rate uses the analysis of 12 financial variables, including Treasury rates, mortgage rates, and borrowing spreads, to translate the full range of policy actions into an analogous level of the funds rate, That can help assess whether policy is tighter or easier than the official funds rate suggests. In a November 2022 San Francisco Fed Economic Letter, the developers of the proxy rate noted the following: "As the FOMC increasingly used forward guidance and the balance sheet, the proxy rate has tended to lead the actual funds rate, reflecting the fact that financial markets are forward looking." The letter also noted that "combined policy tools have a more complex effect on the economy than the federal funds rate indicates." This suggests to us that Fed watchers should become even more diligent.

What goes up in a straight line sometimes comes down in a straight line. Tuesday was a nasty day for stocks, but it could have been much worse if not for a late-day rip higher. The S&P 500 (SPX) was down 102 points or 2% at 3:20 pm, but rallied over 30 points to finish down 1.4%. The Nasdaq fell 1.8%, the Nasdaq 100 dropped 1.6%, the S&P MidCap 400 gave back 2.4%, and the Russell 2000 collapsed 4%.

Returns can get a bit dicey for the stock market from February into mid-March, especially in a presidential election year. Yet February 12 saw a massive reversal in relative strength, one that could be described as 'Revenge of the Small Caps.' That also can be said about the three trading days before 2/12. The Russell 2000 (IWM) rose 1.8% on February 12 and had popped 5% in three days. The iShares Micro-Cap ETF (EWC) gained 2.8% and surged over 6% in three days. The IWM is quickly approaching a key technical level at 205, which was the recent high in late December as well as the key breakdown level from January 2022.

The Vickers Top Buyers & Sellers is a daily report that identifies the five companies the largest insider purchase transactions based on the dollar value of the transactions as well as the five companies the largest insider sales transactions based on the dollar value of the transactions.

The Vickers Top Insider Picks is a daily report that utilizes a proprietary algorithm to identify 25 companies with compelling insider purchase histories based on transactions over the past three months.

U.S. stocks fell on the CPI report that showed hotter-than-expected inflation data. Headline CPI rose 0.3% in January, up from 0.2% in December and above the consensus estimate of a 0.2% increase. Core CPI rose 0.4%, up from last month's 0.3% increase. These latest readings bring the annual rate of headline CPI to 3.1% and core CPI to 3.4%, down from 3.4% and 3.9%, respectively. The S&P 500 fell 1.1%, the Dow 1.1% and the Nasdaq lost 1.3%. Crude oil traded near $78 per barrel and gold fell $26 to $2007 per ounce.