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Goldman Sachs is short another $3M after being fined for marking 60 million short sales as long. Not to be outdone, BlackRock just got saddled to sell $114B of SVB and Signature Bank’s assets.

Let’s dive in.

Economy Heat Check

As of 4/5/2023 market close, unless otherwise stated.

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Briefings

• Savvy Games buys Scopely for $4.9B (FT)

• Exxon quits drilling in Brazil after failing to find oil (WSJ)

• Costco falls on lowest US sales growth in almost three years (BBG)

• Arrow Financial receive Nasdaq notice regarding late filing of annual report (MSN)

• China services PMI climbs to 28-month high in March (MarketWatch)

• Marvel’s former chairman claims he was fired because Disney “too aggressively cut costs”, “ran afoul of creatives” (WSJ)

Performance Review

Firm updates your bank may be less inclined to disclose.

• Goldman Sachs fined for marking 60M short sales as long (BBG)

• BlackRock appointed by FDIC to sell $114B of SVB and Signature Bank assets (FT)

• Citi picks Elgen to lead global wealth in the Middle East and Africa (BBG)

• Credit Suisse’s top executives to have their bonuses cut or canceled by Switzerland (BBG)

• Toronto-Dominion becomes the biggest bank short with $3.7B on the line (BBG)

• Berkshire Hathaway has filed to sell yen-denominated notes (PR)

Expectations Reset: Q1 Review

Analysts have been more pessimistic in Q1 than investment bankers who used to specialize in SPACs. Companies are issuing negative EPS guidance like it's going out of style. After a relatively red 2022, the US stock market gained during the first quarter of 2023. That was despite a banking crisis, cryptocurrency meltdowns and economic uncertainty. To recap markets’ Q1 2023 performance:

The S&P 500 went on a rollercoaster ride throughout the quarter, starting with a climb in January, then taking a dramatic plunge in February, only to bounce back up in March and finish the quarter on a high note with a 7% increase.

The Nasdaq came back from the dead, with a whopping surge of almost 17% in its best quarterly gain since the end of 2020. The miraculous comeback happened after a brutal 2022 for tech stocks, where investors were so scared of the Fed's interest rate hike campaign that they ran away from tech like it was a plague. It's almost as if the Nasdaq was resurrected by some tech-savvy divine intervention, or maybe it just found a bunch of lucky four-leaf clovers lying around.

The Dow Jones’ first quarter was about as underwhelming as a coffee chat with an intern – rising just 0.4%.

US Treasuries saw their worst year in 2022 due to the Fed’s fast and furious rate hikes. Not to be outdone, bond prices rose as investors wagered that the Fed won’t raise rates as high as previously expected, thanks to the banking crisis.

Investors flooded out of Stock ETFs for Bond ETFs. Bond ETFs saw inflows of $53B in Q1 – 114% above their 10-year average. Meanwhile, stock ETFs logged $29B in inflows in Q1 – 47% below their typical Q1 figure.

Gold is up nearly 8% as of Q1, with holds now surging past $2,000. Its record high is quickly coming into sight.

Oil and gas were hit by stalling activity levels in Q1, reporting an increase in costs for the ninth consecutive quarter. The rising costs are primarily due to the increased demand for equipment and labor, which has led to a shortage of both. As a result, many companies were forced to pay higher prices for equipment and labor, affecting their profitability.

There's still hope for the second half of 2023, wherein analysts are predicting earnings growth. The forward 12-month P/E ratio is 17.8, which has been increasing since the end of the fourth quarter. And, despite being below the 5-year average, it’s still above the 10-year average.

But, no need to hold your breath until the end of 2023. We may no longer be entertained by Powell’s battle with hiking decisions, but we can still tune into his latest war of words with Jamie Dimon.

Still to Come: Monthly Jobs Report

It looks like the US job market is finally cooling off, which is great news for Fed officials considering taking a break from their marathon of interest rate hikes. Both Tuesday’s JOLTS and Wednesday’s ADP employment releases came in well under even the interns’ predictions. To recap, JOLTS job openings come in at 9.931M (exp. 10.5M; prev. 10.824M). Private employers added only 145,000 jobs in March (exp. 200,000; prev. 261,000), per ADP’s jobs report.

But don't worry too much about this week’s earlier reports, which are both not always reliable predictors of future trends. The US’ more comprehensive employment report drops tomorrow morning, and that's what all eyes on the street will be on.

Economists now think the current labor cooldown trend may prove true in March’s unemployment. The rationale: higher borrowing costs. But inflation has been well over 2% for quite some time, so “people being less interested in buying more expensive things” isn’t the most bullet-proof explanation for why March could be the month jobs reports started reflecting the state of rates.

Friday’s unemployment print will tell whether March’s jobs market data will provide enough fuel – or lack thereof – for Powell’s rate hike ceasefire. Job openings fell below 10 million at the end of February for the first time in nearly two years. But, even though there are fewer jobs available, the labor market is still pretty tight. The JOLTS report revealed there were 1.7 job openings for every unemployed worker in February.

So, if you're a Fed member, you may finally have gotten enough steps in on your hike. And, for you SF Fed members, may we recommend Econ for Dummies, if you seriously called for more rate hikes while “regulating” SVB’s bets on long-term mortgage bonds.

Meme Bank

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Kept this one shorter after the intern's performance review. Let us know your thoughts on shorter and sans-Deep Dive.