Here’s when history says the post-Fed pause rally should start — and the two unlikely sectors to benefit

Elsewhere, JonesTrading’s chief market strategist Mike O’Rourke said he’s “stunned” that Powell has now “hiked twice in the face of sizable bank failures. While we would agree these challenges are far less severe than 2008, we also believe discretion is still the better part of valor,” he told clients.

“Nonetheless, here we are on the cusp of a 4th bank failure and the S&P 500
SPX,
-0.70%
is 2.5% higher than where it closed the last day SVB traded, before it was placed in receivership. Maybe the Fed Chairman is taking his signal from the equity market as both have expressed a low level of regard for risk,” said O’Rourke.

Read: Why stock-market bulls can’t celebrate as Fed hints at pause in rate hikes

Onto our call of the day, which offers more cheer in the face of fear, as trader Kevin Muir of the Macro Tourist blog walks us through what markets did after final Fed hikes, with some surprising stock winners.

Muir looked at total returns from the day of the last Fed increase, representing average returns from tightening campaigns between 1984 and 2018. “On average, on the first day after the last hike, stock markets decline. The next day it gets worse. And on the third day, it declines a little more,” he said.

But on the fourth day, markets stop falling and two weeks later stocks are up, meaning investors just take a few days to digest the rate hike and start to move on.

Moving even further out, things also don’t look shabby at all, as his chart shows:

The big takeaway here, says Muir, is that investors should not rush out to buy right away, but hold their fire for a couple of weeks, if things go to script. He also looked at bonds and found things bullish across the boards with falling yields, but only on week 3 and 4 after the last hike.

As for stocks, he did this rundown of major sectors from the first week to 90 days later:

In the first week, he finds everything losing but financials, then he scans further out, where tech stocks are in the lead after 90 days.

“Looking at the next winners, we have financials and real estate. Holy smokes, talk about a scary duo to own right now – but maybe that’s why they might work? The sentiment in these two sectors is so downtrodden, we could see a massive short covering rally,” said Muir.

Read: SVB and First Republic are just the first of many U.S. banks that will fail — if you believe 800 years of history

The markets

Stock futures
ES00,
-0.28%

YM00,
-0.23%

NQ00,
-0.14%
are lower after Wednesday’s post-Fed decision decline and bank stress heats up, while Treasury yields
TMUBMUSD02Y,
3.883%
continue to tumble, with the 10-year note
TMUBMUSD10Y,
3.399%
at 3.34%. Crude-oil futures 
CL.1,
-0.17%
are barely higher, clinging to $68 per barrel. The dollar 
DXY,
+0.22%
is down and gold
GC00,
+0.46%
and silver
SI00,
+0.66%
are higher.

The European Central Bank has hiked its key rate by 25 basis points as expected, saying the inflation outlook remains “too high for too long.” A news conference with President Christine Lagarde is coming up. European stocks
SXXP,
-0.49%
are weaker across the board,

For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.

The buzz

PacWest
PACW,
-1.98%
shares are down 40%. The lender issued a statement saying deposits are rising and confirmed it’s in talks with potential investors or partners. A late plunge in shares came Wednesday on a Bloomberg News report of a possible sale. Western Alliance Bancorp 
WAL,
-4.40%
also sought to reassure investors, but shares are down 16%. Zions Bancorp
ZION,
-5.27%
is off 11%.

First Horizon stock
FHN,
-7.04%
is down 40% after the bank said it has mutually agreed with TD Bank Group
TD,
+0.40%
to terminate their merger deal.

There’s also this:

Loaded with consumer brands including Tylenol, Johnson & Johnson’s Kenvue spinoff
KVUE,

heads for the biggest IPO in over a year on Thursday, with shares priced at $22 each.

Arconic
ARNC,
-5.69%
is up 29% as the industrial-parts maker confirmed a deal to be acquired by private-equity firm Apollo Global Management.

Bud Light problem? Anheuser Busch
BUD,
+1.34%

ABI,
+1.02%
reported a jump in profits. Moderna
MRNA,
-0.96%
is up on a surprise profit and revenue jump. Peloton
PTON,
+2.56%
is up on an earnings beat, Royal Caribbean
RCL,
-1.08%
is rallying on a profit outlook bump and narrower loss. Blue Apron
APRN,
+13.09%
is up 9% on a smaller-than-expected loss, and a comment the meal-kit provider will pursue “all options available.”

Then it’s a huge after-hours lineup, with Apple
AAPL,
-0.65%,
DoorDash
DASH,
+1.20%,
Lyft
LYFT,
+2.35%,
Shopify
SHOP,
-1.09%,
Coinbase
COIN,
-5.51%,
DraftKings
DKNG,
-0.50%,
AIG
AIG,
-1.12%,
Bumble
BMBL,
+2.78%,
GoDaddy
GDDY,
-4.80%
and Fortinet
FTNT,
-1.55%
to name a few.

Read: Apple is about to rain billions more on investors alongside earnings

Lemonade stock
LMND,
+1.65%
is up 12% after upbeat results from the online insurance group. Zillow
Z,
-1.00%
reported forecast-beating earnings, despite wobbles in residential real estate.

First-quarter productivity fell 2.7% annually, sharper than expected, while unit-labor costs rose 4.5%. Weekly jobless claims rose by 13,000 to 242,000, indicating signs of softness, while the March trade deficit narrowed to a 4-month low of $64.2 billion.

Read: Why the economics profession didn’t forecast the surge in inflation — and why prices can cool without the economy tanking

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