Five interesting things that Hodges Capital research analysts discovered this week...

#1 CURVEBALL: A course correction may be underway for the Federal Reserve’s March 16 policy decision, as the swaps market now prices in fewer than 25 basis points of tightening at that meeting, compared to more than 40 basis points just three weeks ago. Longer-dated interest rates have followed suit, with the 10-year Treasury yield sinking to as low as 1.68% today, its lowest since early January and down from 2.04% on February 15. – Grant’s Interest Rate Observer 

#2 OIL SHOCK: The West Texas Intermediate (WTI) oil price now stands at roughly 60% above its 200-day moving average according to a recent analysis by Strategas, representing the highest level since the 1990 oil price shock when Iraq invaded Kuwait. During the 1990 oil shock, the S&P 500 corrected 20% and the U.S. entered a recession. In 1990, the Fed funds rate was 8% and eventually embarked on an easing cycle.  

#3 MARKET DISLOCATION: Over the past year, S&P Small Caps have underperformed Large Caps by 12.8% (2.1% vs. 14.9%), despite much stronger earnings. This has left smaller names extremely undervalued relative to their larger peers. – Credit Suisse

#4 REMOTE WORK: A recent report by Kastle Systems indicated that the average office occupancy rate in 10 major US cities was 37% during the last week of February. Kastle Systems also found that occupancy at movie theaters was 58% of pre-pandemic levels, restaurants almost 75%, air travel nearly 80%, and NBA games at 93%.  

#5 REFUND SEASON: The market is monitoring the strength of the tax refund season and its potential impact on consumer credit. Government data compiled by Stephens indicates that refunds are up 21% year-over-year on a dollar basis and 5% year-over-year on a count basis when compared with 2021. The IRS has processed 43.8 million returns through the first 5 weeks of the 2022 season, of which 29.7 million, or 68%, have received a refund. It is important to note that the 2022 tax season started approximately 2.5 weeks earlier than in 2021.

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This discussion is not intended to be a forecast of future events and should not be considered a recommendation to buy or sell any security. Past performance is not indicative of future results. Investing involves risk. Principal loss is possible. Investing in smaller companies involves additional risks such as limited liquidity and greater volatility. No current or prospective client should assume that information referenced in this communication is a recommendation to buy or sell any security or is a substitute for personalized investment advice from your individual advisor. HCM does not provide tax or legal advice. Consult your tax or legal advisor for any related questions.

All information referenced herein is from sources believed to be reliable and is provided as general market commentary and does not constitute investment advice. This material was created for informational purposes only and the opinions expressed are solely those of HCM. HCM shall not in any way be liable for claims and makes no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information. The data and information are provided as of the date referenced and are subject to change without notice.