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Fed Chair Drama Overshadowed by Climate Bill, Oil Price Dip

by | Nov 19, 2021

What I expected to be a down day for the markets featuring some heated debate over the next Chair of the Federal Reserve… instead went in a thousand different directions. 

First, the House passed President Joe Biden’s social safety net and climate bill, and the financial media jumped on that.

Then Kyle Rittenhouse was acquitted after killing people during protests last year, and it was his turn to take front and center.

Finally, oil prices capitulated into the close, taking over headlines…

Source: CNBC

I’m not saying those aren’t relevant stories — two were important to markets — but they’re not the most important. What we should focus on is the effect of the Fed nomination.

Who controls the purse strings at the Fed — and where their policy preferences lean — is going to matter to your money going forward.

We know that the market likes current Fed Chair Jerome Powell. But Fed Governor Lael Brainard would likely bring a more dovish stance to the Chair, meaning any aggressive interest rate hikes could come off the table.

Source: Barron’s

Brainard is set to meet with my home state (and hometown!) Sen. Joe Manchin of West Virginia soon, as he could potentially cast a tie-breaking vote for the Senate.

The Effect of the Senate Fed Nomination on Our Trades

As I’ve written before with regard to the infrastructure bill, Manchin is concerned about inflationary pressures. 

After all, West Virginia is one of the oldest states in the country. And many of its senior citizens live on Social Security. So a significant rise in food or energy costs would take up a large chunk of their monthly budgets, leaving less money for other things they need.

Manchin knows low interest rates and excessive spending only make inflation worse, so my expectation is Powell gets the nomination.

But if he doesn’t, that bodes well for most members of our watchlist, all of which benefit from inflation in some way.

That was not the case Friday, however, as our retail plays all got whacked despite putting up solid numbers…

Source: Fortune Research, Bloomberg

Our weekly free trade, dress shoe retailer Caleres Inc. (NYSE: CAL) was just such a casualty, posting quarterly earnings of $1.59 per share versus $1.14 expected, and revenue of $764 million versus $753 million expected.

To boot, the company raised guidance, too… and it was rewarded for that strong earnings beat with an 8% fall in the stock price…

Energy — except natural gas — got tagged as well, with oil prices hitting the aforementioned low, and coal stocks falling along with them.

That’s an interesting outcome heading into one of the biggest travel weeks of the year, and into winter no less.

This is a stocks-only phenomenon at the moment, though, as prices for each remain much, much higher than a year ago.

Strong economic data suggests we should fade this move here and buy the dip — especially given Friday’s monthly options expiry.

But we should wait and watch for the Fed nomination over the weekend.

Because if we see Brainard get the nod, these very stocks may go right back off to the races.

All the best,

Matt Warder

Fortune Research

WRITTEN BY<br>Matt Warder

Matt Warder

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