Fed Officials Turn Hawkish

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Fed Bank of New York President John Williams said yesterday that a rate hike is still “not” in his baseline forecast, but it is on the table if necessary. His Atlanta counterpart Raphael Bostic doesn’t think a rate cut is warranted toward the end of 2024. Lastly, Minneapolis Fed chief Neel Kashkari said there’s a chance that rates will remain unchanged throughout the year. These comments came after Fed Chair Jerome Powell sounded hawkish, saying that rate cuts may happen later than previously expected. Indeed, the last few inflation readings were enough to convince the central bank that it may be a problem. - “The Fed rhetoric was skewed hawkishly,” said Ian Lyngen and Vail Hartman at BMO Capital Markets. “The data lineup and updates from an array of talking Feds left the market with the impression that Powell’s assessment on Tuesday is the party line — therefore ‘wait and see’ to ‘wait and see’.” As a result, the two-year Treasury yield jumped to hit about 5%. Wall Street is watching this yield because higher yields create more competition for stocks. So, it may mean that more investors will sell stocks to buy bonds. As for economic data, jobless claims held at a healthy level. The Philadelphia Fed factory beat estimates. These data show that the economy remains robust — a positive sign for corporate earnings. - “Most of the data this week show the economy is still firing on all cylinders,” said Chris Larkin at E*Trade from Morgan Stanley. “That’s going to be a challenge for the Fed’s rate-cutting plans.” Minneapolis Fed chief Neel Kashkari (Photo: REUTERS) These comments came after Fed Chair Jerome Powell sounded hawkish, saying that rate cuts may happen later than previously expected. Indeed, the last few inflation readings were enough to convince the central bank that it may be a problem. - “The Fed rhetoric was skewed hawkishly,” said Ian Lyngen and Vail Hartman at BMO Capital Markets. “The data lineup and updates from an array of talking Feds left the market with the impression that Powell’s assessment on Tuesday is the party line — therefore ‘wait and see’ to ‘wait and see’.” As a result, the two-year Treasury yield jumped to hit about 5%. Wall Street is watching this yield because higher yields create more competition for stocks. So, it may mean that more investors will sell stocks to buy bonds. As for economic data, jobless claims held at a healthy level. The Philadelphia Fed factory beat estimates. These data show that the economy remains robust — a positive sign for corporate earnings. - “Most of the data this week show the economy is still firing on all cylinders,” said Chris Larkin at E*Trade from Morgan Stanley. “That’s going to be a challenge for the Fed’s rate-cutting plans.” Netflix’s earnings results: The streaming service smashed expectations for subscriber growth with a 16% gain in the first quarter. But the company said it would not provide quarterly membership numbers or average revenue per user starting next year. It expects paid net additions to be lower in the second quarter versus the first quarter “due to typical seasonality.” Netflix’s decision hints at its new stage as a company. Previously, it acquired subscribers at a breathtaking pace. But it is starting to enter a slower subscriber growth phase. However, it becomes more profitable as a mature company. - “As we’ve noted in previous letters, we’re focused on revenue and operating margin as our primary financial metrics — and engagement (i.e. time spent) as our best proxy for customer satisfaction,” the company said in its quarterly letter to shareholders. “In our early days, when we had little revenue or profit, membership growth was a strong indicator of our future potential.” This morning, we will get results from Procter & Gamble, SLB and American Express. Don’t Sleep On This 134-Year-Old Company Today’s Stock Pick: Carpenter Technology (CRS) This is my favorite kind of trade. Why? Carpenter Technology does nothing exciting. It is a 134-year-old company that makes stainless steel and corrosion-resistant alloys. But this is not a stock that you should sleep on. I will tell you why in a minute. First, it makes 500+ alloys in various products forms: (Source: Carpenter Technology) But there’s a unique thing about this company. It produces a difficult-to-replicate system of product and process capabilities. And building out capacity is also difficult. More importantly, it produces highly technical materials that require enormously-high quality. Why? They provide materials to critical industries like aerospace and medical. One loose piece can cost human lives. So, any manufacturer must be qualified to produce these materials. It is not easy to enter the business. It is not like TV manufacturers where virtually anybody can enter the industry. About 50% of its revenue was from aerospace and defense. Medical had 13% of the revenue while industrial & consumer accounted for 18% of the total revenue. (Source: Carpenter Technology) Almost every segment has strong demand trends. For example, let’s look at aerospace. About 40% of the revenue was for engines. You can see other parts that Carpenter manufactures for the aerospace segment: (Source: Carpenter Technology) Now, look at the annual production rates for airplanes. It is going to grow over the next few years. 2013 was about 1,200 airplanes. Carpenter said the number could jump to about 1,800 in 2027. (Source: Carpenter Technology) That’s an important growth driver since the segment (along with defense) accounts for 50% of its total revenue. As for medical, it produces many essentials that make medical miracles possible — dental implants, spine, joint reconstruction, surgical instrumentation, MRI, X-ray, and so on. (Source: Carpenter Technology) The company expects aerospace & defense to grow by 23% year over year in the second quarter. Medical is poised to do well with a 16% growth. (Source: Carpenter Technology) Now, here’s the kicker: Remember that I promised you something so good about this company? The company expects operating income to grow by 40% CAGR from FY23 to FY27. Moreover, the company expects the accomplishment to be front-loaded. About 50% of the opportunity is expected to be accomplished in FY24. Meaning? The company is prepared to post phenomenal results this year, which can be marvelous for its stock price. [EARN WHILE YOU LEARN! JOIN OUR FREE LIVE TRADING SESSION!](       © All Rights Reserved, Trade Alliance [Unsubscribe]( | [Manage Preferences](