Mid-Market Update: Stocks fluctuate awaiting geopolitical updates, Hawkish Fed Speak

The end of another long week has Wall Street bracing for another rollercoaster ride as investors digest President Biden’s crucial call with Xi and await to see if any possible pathways emerge for ending the conflict in Ukraine, all while roughly $3.5 trillion of single-stock and index-level options expire.  The days of seeing all the sectors in S&P 500 being green appear to be long gone. It could be a choppy ride as investors continue to rotate out of financials as the Treasury curve flattener trade appears to be here to stay and energy stocks might have hit their peak as traders have already priced in higher oil prices and strong margins going forward.  FAANG stalwarts have been oversold for too long and investors are gravitating to quality cloud and security stocks.

Fed Speak

James Bullard, the most hawkish Fed member, provided a statement on his dissent.  Bullard recommended a much more aggressive tightening path to fight inflation, suggesting that the Fed funds rate to rise above 3% this year.  Bullard also wanted to see the Fed implement a plan for balance sheet reduction this week.

Fed’s Waller told CNBC that the Fed should consider half-point rate increases at the next couple of meetings and that he would like rates above neutral by the end of the year. Waller is comfortable if the Fed begins the balance sheet runoff at the May or June policy meetings.

Wall Street is expecting a Fed that will front load their rate hikes and that should keep the flattener trade firmly in place.

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