I hope you enjoyed the long weekend. I'm senior reporter Phil Rosen — it's good to be back.
The talk of the town through all of 2022 was how badly stocks were doing, but that's been reversed over the last seven weeks.
Indexes are all moving up and to the right, and investors are piling back into some of the biggest losers of last year like crypto, electric vehicle stocks, and tech.
Stranger still is how hype only seems to be growing despite the Fed's insistence that tough monetary policy is still on the way — which raises the odds of a recession.
Between the central bank, economy, and markets, not only are none of those things on the same page, they don't even seem to be part of the same story.
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1. When you weigh the surprising strength of the economy against still-hot inflation and a soaring equities market, nothing seems to make sense.
As my colleague Matthew Fox writes, the stock market has been completely flipped upside down so far in 2023.
The same risky assets that took a walloping last year are staging a comeback, even as the Fed readies more interest rate hikes.
The FOMO trade seems to be back, illustrated by the craze for AI stocks spared by ChatGPT, but also the renewed frenzy for things like meme stocks and crypto.
This is the type of trading behavior you'd expect to see when interest rates are closer to 0% than 5%.
The rally in speculative assets is a rebuff of Jerome Powell's messaging that the central bank's inflation battle isn't done.
"There is an old adage 'don't fight the Fed,' but this behavior is not just fighting but also taunting the Fed with crypto, meme stocks, and unprofitable companies responding best to Fed communications," JPMorgan's Marko Kolanovic wrote in a recent note.
Don't forget, too, that the Fed has been reducing its balance sheet by roughly $100 billion each month — but markets are still acting like they aren't having liquidity pulled out from under them.
To Kolanovic, the errant investor behavior foreshadows a plunge in the stock market.
"Based on historical regressions, the move in 2-year interest rates since the [February 1] Fed meeting should result in a ~5%-10% sell-off in [the] Nasdaq," he said. "The risk-reward of holding bonds at this level of short-term yields looks better than equity than any time since the great financial crisis."
Have you increased or decreased your stock portfolio since the start of the year? Tweet me (@philrosenn) or email me (prosen@insider.com) to let me know.
In other news:
2. US stock futures fall early Tuesday, as investors stay worried that persistent inflation means interest rates will stay higher for longer. They're now waiting for the release of minutes from the Federal Reserve's latest meeting on Wednesday. Here are the latest market moves.
3. Earnings on deck: Walmart, Home Depot Inc, and HSBC Holdings, all reporting.
4. Meet a 27-year-old freelance writer who brought in $115,000 last year working 30 hours a week. He explained how he's using ChatGPT and other tools to work smarter and more efficiently: "I don't think writers should fear it."
5. Following the Ohio train derailment that spilled toxic chemicals into East Palestine, Norfolk Southern has erased $5 billion in market value. JPMorgan strategists estimated that the company will face related costs as high as $50 million. Two weeks after the catastrophe, community residents still have concerns about potential negative health impacts of the lingering chemicals.
6. Investors need to start worrying about Americans running out of savings. SoFi's Liz Young warned that a lack of reserve funds could stop this year's stock market rally: "What the equity market is not pricing in at this point, or is not worried enough about, is consumer spending."
7. North Korea and Russia are ramping up trade in oil, coal, and weapons. A new paper from the Center for Strategic and International Studies said Moscow is turning to Pyongyang for economic support in its war efforts. The sanctions chokehold on Russia increases the odds the uptick in railroad trade is a sign of increased demand for munitions.
8. Deutsche Bank just raised Wall Street's highest interest rate forecast. The firm's chief US economist already had the steepest prediction, but he now thinks the Fed's inflation fight is stalling out — here are three reasons why.
9. A crypto chartmaster broke down why bitcoin could drop up to 50%. Despite the top token's massive comeback this year, it still has a significant downside potential. Instead of bitcoin, the crypto expert named four altcoins that he's bullish on for 2023.
10. Microsoft stock could see a 15% jump as a result of its AI efforts, according to Wedbush's Dan Ives. The strategist maintained a $280 price target, but also noted a $300 bull-case scenario for the tech giant that recently backed OpenAI. From his point of view, Microsoft is "leading the pack" in the AI race.
Curated by Phil Rosen in New York. Feedback or tips? Tweet @philrosenn or email prosen@insider.com.
Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.