The broad markets are rallying hard today, with the S&P 500 up about 1.5% in addition to a 2.2% rally yesterday; however, we still remain ~9% down for 2022. However, as we discussed in this note, not all sectors performed equally terrible. Healthcare sector has been the star of our portfolio and has been helping us to outperform the S&P 500. Into today's strong price action, we want to trim some shares of Eli Lilly, with this stock approaching all-time high levels again (see chart below). Across multiple portfolios, our cost basis in this position is $240-250, and by selling today at ~$275, we're realizing a ~10% gain. We're not getting out of this position altogether, because we still view that the risk of a recession remains, and healthcare sector is a great play for recessionary environment, especially profitable, strong growth and reasonably valued healthcare names. Therefore, we're only selling about 30% of our LLY position. 

To get into more technicals, one of the contributing factors to our sale decision is that LLY is facing all-time-high resistance here (when the stock reaches a high level that faces a lot of seller). The stock reached this level in August 2021, December 2021, and now back to it again. Even when the S&P 500 is up ~1.5% today, LLY is flat-to-down, meaning it is definitely weak. What we're looking to do is to sell some here, hope that the stock goes lower (ideally towards $250-$260) and buy it back. If it does not go lower, the remainder will still benefit. 

Moving away from individual stock, here's a brief summary of the market today (courtesy of FactSet):

US equities higher: Dow +1.13%, S&P 500 +1.62%, Nasdaq +2.73%, Russell 2000 +2.04%

• US equities higher in Wednesday midday trading, adding to yesterday's notable rally that was supported by dampened inflation concerns, positive updates out of the airline space and continued ceasefire talks. Growth topping value by ~130 bp today after yesterday's 170 bp outperformance. China tech, FANMAG complex, profitless tech, fintech, airlines, restaurants, autos, banks, credit cards, casinos, software some of the strongest groups. A&D, utilities, E&Ps among the weaker areas. Treasuries mostly weaker. Dollar weaker on the euro cross but a bit firmer vs yen. Gold off 0.8%. Bitcoin futures up 2.7%. WTI crude down 0.7%, reversing earlier gains after surprise US inventory build.

• Market extending Tuesday's bounce with help from supportive comments from China, along with continued hope that Russia and Ukraine can make some progress in peace talks. Oversold conditions and depressed positioning and sentiment indicators remain some of the other prominent bullish talking points. In addition, hawkish Fed policy pivot widely understood with the market already pricing in an aggressive near-term tightening cycle. Recent cooling of the commodity rally has also helped dent what has been a fairly unrelenting ramp in inflation worries over the past few months. Recent batch of corporate updates has played into the economic normalization theme.

• China's top economic official said it would take measures to support economy and financial markets and made reassuring comments on a number of issues (tech crackdown, ADRs, property risks) that have pressured stocks. Russia and Ukraine said to have made "significant progress" on peace plan that includes ceasefire and Ukrainian declaration of neutrality. Followed early statement from Russia that a neutral Ukraine in the style of Austria or Sweden could be a compromise. Ukraine reportedly rejected neutrality compromise, though Zelensky said peace talks with Russia were beginning to "sound more realistic." WSJ reported Russia softening some of its demands has re-opened path for Iran nuclear deal. On the data front, US February retail sales missed expectations with an unexpected decline in the control group on softness in nonstore retailers (Internet), furniture and electronics and appliances. Followed strong (and upwardly revised) January print.

Lastly, we want to discuss monetary policy from the Federal Reserve. March FOMC meeting ends in a couple of hours with release of policy statement and updated Summary of Economic Projections (14:00 ET) and Chair Powell press conference (14:30 ET). Fed expected to begin hiking cycle with 0.25% rate hike, but dot plot in updated SEP will be a key focus. JPMorgan and Goldman Sachs economists both see dot plot showing six hikes in 2022, up from three in December. The December SEP also showed a terminal rate of 2.5%, though previews noted new terminal rate could rise to 2.75-3.0%, which could show restrictive policy by 2024. However, some noted Fed may be hesitant to reflect tight policy outlook. Previews also noted Fed could begin discussions on balance sheet drawdown, with Chair Powell's press conference offering opportunity to offer details around size of monthly caps and what conditions Fed needs to start drawdowns. However, some economists expect no details until May with monthly drawdown caps of $60B in Treasury securities and $40B starting in June. 

What's also interesting is what the market expects for the May 2022 FOMC meeting (the next one). Per CME Fed Watch Tool, the market is pricing in 48.6% chance for a 0.25% hike, and a 50.6% chance for a 0.50% hike. To explain these hikes again and put them into perspectives, before the March 16th 2022 FOMC meeting, rates are at 0 - 0.25%. When the March FOMC meeting ends, it is 98.3% likely that the target rate will be 0.25 - 0.5% (meaning the Fed would start a 0.25% hike). In May, a 0.25% hike will take the target rate to 0.50 - 0.75%, and a 0.5% hike will take the target rate to 0.75 - 1%. Because it's a 50-50 chance, what the Fed releases and says today will influence these likelihoods. 

More hawkish Fed will likely take down technology/ high growth/ high valuation stocks. Higher than expected rates should take the bank/ financial stocks higher. However, on the other hand, higher rates pose a chance of slowing the economy, which could also hurt financial stocks. But either way, we think it's a good call to avoid high valuation, high multiple stocks altogether, especially companies with no earnings.