Can The Fed Engineer A Soft Landing?
The One Key to Your Investment Success!

March 26, 2023

Weekly Market Outlook

By Keith Schneider and Donn Goodman

Good day Gaugers. Hope you have had a good and productive week. We certainly live in interesting yet unusual times. From economic challenges to geopolitical upheaval and ongoing risks, to weather disturbances (terrible storms this weekend), to divisive political rhetoric, we find ourselves in stimulating and potentially fearful times. If you are a news junkie (admittedly, I am), then there is plenty to chew on daily.

Also, we have had many positive comments from readers about “pulling in” other opinions into our weekly Market Outlook. Thank you for the input. I feel as if we are an aggregator of sorts.

Also, many very smart analysts (CMT-Chartered Market Technicians) and economic gurus have far more profound things to say than me. For that I am grateful. We try, as best as possible, to give them their credit and perhaps even drive you to their social media sites or investigate their offerings.

Back to the business at hand.

The Fed raised 25 basis points this past week after their Fed meetings. We were steadfast in our column last weekend that this would happen.

There were NO Fed Governors calling for a pause. There was no indication that there would be interest rate cuts anytime in 2023, as some had (and are still) expecting.

The mantra was, “we intend on keeping rates higher for longer.” 

As we have stated here on many occasions, the Fed’s principal role is price stability. Aberrations to price stability typically show up in supply-demand imbalances. This is why the Federal Reserve intervened by lowering rates during the 2020 Covid pandemic. NOT to deal with price instability and inflation, but to counteract a severe supply imbalance. Some say lowering rates to effectively zero, creating free money, and then the Government handing it out, was the start of the inflation spike we are now faced with.

The problem, as we see it, is the Government has continued to hand out free money in recent Congressionally approved bill after bill in the past few years. They continue to add handouts to their already underwater budget or by trying to fix things like infrastructure under the guise that it is an anti-inflation bill. Not quite sure how handing out additional money is going to curb inflationary forces in the economy?

Is the Fed ready to Pivot?

Truthfully, Chairman Powell’s post raise news conference was rather dovish. He said that while inflation remains too high (for the Fed), the banking crisis might force the Fed to pause tightening soon.

The stock market reacted favorably, until…

At a congressional hearing that same day, Treasury Secretary Janet Yellen said, “I have not considered or discussed anything having to do with blanket insurance of guarantees of deposits.”

The day before, at a conference sponsored by the American Bankers Association, Secretary Yellen said, “Let me be clear: the government’s recent actions have demonstrated our resolute commitment to take the necessary steps to ensure that depositors’ savings and the banking system remain safe.” She also added, “The situation is stabilizing. And the U.S. banking system remains sound.”  Yet her speech the day after was very destabilizing, and the stock market sold off and broke through important support levels.

These folks need to get their stories straight. Just so you know, according to the FDIC, $7.4 trillion of deposits are insured up to $250,000, while $10.5 trillion is uninsured. See chart below (provided by Dr. Ed Yardeni):

The FDIC also estimated that at the end of last year, banks had unrealized losses of $600 billion in their securities portfolios, which totaled $5.4 trillion, with $4.3 trillion in U.S. Treasuries and Agencies and $1.1 trillion in other securities at the end of Q2-2022. (See chart below). Most of these securities were purchased during the Great Financial Crisis of 2008-2009.

A Powder Keg That May Not Go Away.

What recently occurred is that there was growing suspicion of the problem referenced above. These problems, and add in some mismanagement by some Regional Banks who were willing to lend out “free money” to start-up businesses and private equity operators, and you had a slowly building run on the banks. Many of the above referenced securities had to be sold at a significant loss so the banks had liquidity for the people withdrawing their deposits.

Is it over? Not hardly.   

Here are what the world leaders said over the past week:

  1. President Biden: “Our banking system is safe”
  2. S. Treasury Secretary Yellen: “U.S. banking system is sound”
  3. Fed Chairman Powell: “Banking system is strong”
  4. Swiss National Bank: “Problems of U.S. banks do not pose a risk of contagion for Swiss financial markets”
  5. European Central Bank’s Legarde: “Equipped to provide liquidity to the financial system if needed”
  6. French Economy Minister: “U.S. bank failures pose no risk of contagion for European institutions.”
  7. Dutch Prime Minister Rutte: ”Very unlikely we’ll have a new banking crisis in Euro Zone”
  8. German Chancellor: “The banking system in Europe is stable”

Meanwhile, Credit Suisse sold for pennies on the Dollar, and 200 banks in the U.S. are facing the same risks of SVB.

Then on Friday, we learned that Deutsche Bank credit default swaps hit a 4-year high. These are used to insure or act as a hedge against any potential underlying bank weakness.

The disconnect between leaders and reality is concerning.

Will the Fed’s policies, coupled with the current banking crisis, lead us into a recession?

Throughout our weekly commentaries (including our own Mish’s Daily article this week), we have suggested that it may be nearly impossible to avoid a recession, even if it is a mild one. We still feel that way. Inverted yield curves, as we demonstrated in last week’s Market Outlook, had several graphs showing this.

The continued turbulence of the banking industry has become global in scope these past two weeks. We picked up on comments made by experts, some of whom you may recognize. See quote below:

There is no doubt that the speed at which the Fed raised rates from effectively 0% during the pandemic to now approaching 5% has had a detrimental effect on the banking system.   Most economists, analysts, and experts are calling it the banking & financial crisis of 2023. That said, almost every crisis similar to this one has led to a recession. See chart below:

So now we are faced almost daily with concerning news of a slowing economy and a banking crisis. Americans are also facing much higher everyday costs, and they see their credit card interest rates going up dramatically. This, in conjunction with the daily volatility of the stock and bond markets, and investors have begun to move money out of stocks and into Treasuries and insurance products that promise no loss of capital.

It is surprising that folks want to put their $ into fixed income again, given the shellacking that most fixed income funds experienced last year (down on average 12%-15%). Yet approximately $140 billion has flowed into Treasuries this year. Clearly, investors think that Treasuries have peaked, and there is little risk of interest rates rising further.

We view this as a RISK OFF trade, and we have strategies right now that are also invested in Treasuries through an ETF. See the recent positive performance of the TLT (20-year Treasuries) finally popping above the 200-day moving average. See chart below:

Another recent trend is that many Americans have moved to CASH. This is probably to the chagrin of their financial advisors who try to keep their clients fully invested. Much of this is mandated by their firms. It is really a breach of trust. Eventually, however, the client has (and always should) win out. This move is the largest since the pandemic in March, 2020. See chart below:

Looking More Closely at the Markets. 

In a bullish market, most boats are lifted at the same time. Normally we would see many sectors behaving positively in tandem. Small caps would be rising along with large caps and technology. This is currently NOT THE CASE.

The NASDAQ shows the most strength. However, it is being fueled by a few of the largest companies that make up the largest capitalization NASDAQ 100. These include Apple, Microsoft, Nvidia, Meta, Google, and Tesla. See chart below:

A good look at how technology stocks fare against the smaller, more speculative companies can be seen in the following chart:

The S&P 500 is currently experiencing chop city. It keeps wrestling with the 200-day moving average, and even though it is above it this past week, it remains dependent on the Financials which are teeter tottering on a breakdown through long-term support. See the charts below:

Most S&P 500 sectors are weak and in negative territory so far in 2023. Notice in the chart below how Energy stocks, the darlings of 2022, are having the roughest time performing well this year (thru Thursday, March 23, 2023):

The Most Important Key to Your Investment Success:

Now that we have peppered you with the good, bad, weird, and concerning topics about the economy and the stock and bond markets, we would like to offer you the most sage advice for your ongoing investment success. This is one concept that will increase your odds of profiting in difficult, volatile, non-trending, and hard to understand markets like we have been and continue to be going thru.

make or become more diverse or varied.

Until last year, most U.S. investors believed that diversification meant a few things:

  1. Have a balance between fixed income securities and stocks. (Both got hurt last year)
  2. Incorporate both growth and value stocks as part of your portfolio (if this was a buy and hold portfolio most investors got hurt from this as well)
  3. Incorporate small, midcap and large cap stocks in a portfolio (in a buy and hold portfolio these all got hurt in differing amounts over the past 18 months)
  4. Make sure to include high dividend paying stocks (these were hurt as well during 2022)
  5. Hold some cash. (Good reasoning, but nobody had enough during 2022)
  6. Use some alternative investments, including real estate. (These were probably the things that worked the best during the past 18 months).

While some of these are ways to have diversified and that WORKED in the past, we would like to extend a few more items to this list that we think will make all the difference in your investing success:

  1. Incorporate adaptive and tactical investment approaches to any buy and hold strategy you are utilizing. This should help mitigate some of the potential drawdown exposure from a passive portfolio.
  2. Use different investment methodologies that exploit different investment edges.
  3. Make sure that you have exposure to commodities and hedges (VIX) for potential interest rate and currency risk. These can make a huge difference.
  4. Move around. Sector rotation works well and there are easy ways for you to do it with a systematic approach.

If you just want to do what the indices do, you don’t need anyone’s help to do that.

Don’t you want to do better?

At MarketGauge Asset Management, we would love to have a conversation with you and discuss ways to incorporate 7-11 above. We are confident that we have investment strategies and Portfolio Blends that could fill in for these areas above. Please reach out to us if we can help. You can email me at [email protected] or contact Keith at [email protected].


Now here is the rest of the story from Keith and our insight from our Big View service:


  • Despite not much change amongst the major market sectors, the top performer was Semiconductors (SMH) while the worst performer was Utilities (XLU), a clear risk-on indication. (+)
  • The Volatility Ratio improved in favor of increased short-term volatility, a likely risk-on indication. (+)
  • The component stocks of both the S&P 500 and Russel 2000 have improved on a short-term basis based on an increasing rate of stocks that are above their 10-day moving average. (+)
  • There has been a definite improvement in the long end of the yield curve with both IEF and TLT closing above their 200-day moving averages and entering accumulation phases. (+)
  • Growth stocks (VUG) continue to drastically outperform Value stocks (VTV) on a relative basis, with VUG retaining its bull phase even with a choppy market. (+)


  • The McClellan Oscillator is still in negative mode and failing to recover for both the S&P 500 and Nasdaq Composite. (-)
  • Risk Gauges improved slightly, but still remain in Risk-Off mode. (-)


  • The Nasdaq (QQQ) is holding up as the only index in a bullish phase, while the Russel (IWM) and Diamonds (DIA) remain in a distribution phase. (=)
  • For the first time in several weeks, we’re seeing gradually improving volume across all of the major indices except for IWM, which has had 0 accumulation days over the past two weeks. (=)
  • Foreign Equities across the board outperformed the U.S. market this week. (=)
  • On a short-term basis, the New High / New Low ratio has flipped marginally positive but still remains shaky over the long term for both the S&P 500 and Nasdaq Composite. (=)
  • Semiconductors (SMH) continue to be the clear leader amongst the members of Mish’s Modern Family, however, several of the other members do look to be potentially oversold on both price and momentum according to the Real Motion indicator. Keep an eye on Regional Banks (KRE) for a cross back above the 10-day moving average which would likely indicate the end of the current flush. (=)
  • Soft Commodities (DBA) look to have rejected lower prices and as of the close on Friday looks poised to take out the 50-day moving average, if not the 200-day moving average with it. Real Motion shows a bullish divergence on the momentum of DBA. (=)
  • Gold (GLD) continued its rally, although it has been running a bit rich and could be subject to some mean reversion. (=)

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Donn Goodman