I just got back from visiting my twin grandsons, age seven. If I had known how fulfilling it would be to have grandkids, I’d have had them first. I especially love reading stories to them at bedtime.

One night, the boys picked Hans Christian Andersen’s classic The Emperor’s New Clothes. While reading to them this cautionary tale about the herd mentality, it occurred to me that several real-life “emperors” have recently revealed their nakedness to investors.

Before I get to my daily market analysis, let’s review a few instructive examples of nude emperor syndrome.

Charlie Javice. As the founder and CEO of financial aid startup Frank, Javice had been widely lauded for her entrepreneurial savvy. However, Javice this month was accused of fraud by the SEC, for fabricating user data to con JPMorgan Chase (NYSE: JPM) into purchasing Frank for $175 million. A Wharton graduate and former denizen of Forbes magazine’s 30 under 30 list, Javice faces 30 years in prison.

Elon Musk. The billionaire CEO of Tesla (NSDQ: TSLA) is running a Twitter clown show that has shattered the myth of his technological brilliance and managerial competence. That’s not just a disaster for Musk’s reputation and for Twitter; it’s also a headwind for Tesla’s stock, which for years had been kept aloft by Musk’s cult-like status.

Considering Musk’s shambolic management style, it’s not surprising that his ventures are souring.

Tesla’s stock plunged 9.75% on Thursday, after the electric vehicle maker posted its lowest quarterly gross margins in two years and indicated it would continue to slash sticker prices. On the same day, Musk’s SpaceX Starship exploded midair shortly after it launched in Texas. Thursday was a bad day for Musk, the self-proclaimed genius.

It should also be noted that, contrary to the image Musk has cultivated as a self-made man, he came from a wealthy family in South Africa.

Jim Cramer. CNBC’s “Mad Money” host avidly recommended buying shares of SVB Financial Group, holding company of Silicon Valley Bank, a mere month before the bank collapsed in March and triggered a sector-wide crisis.

Sam Bankman-Fried. The tousled-haired millennial was founder and CEO of FTX, which at its zenith was the world’s second-largest cryptocurrency exchange. FTX filed for Chapter 11 bankruptcy protection last November after the company imploded and panicked customers withdrew billions. Bankman-Fried had been praised in the financial media as a game-changing wunderkind. But now, he stands accused of multiple counts of fraud and faces 155 years behind bars.

As Warren Buffett famously said: “Only when the tide goes out do you discover who’s been swimming naked.”

Let’s do the numbers.

Whither the Fed?

Are you sick of reading about the Federal Reserve? Well, I’m sick of writing about it. But I have no choice. Liquidity is the lifeblood of the financial markets, and the central bank has its hands on the spigot.

Wall Street’s gaze is fixed on the Fed’s next interest rate decision, scheduled for May 3. The market consensus currently forecasts an 85% probability of a 0.25% rate hike in May, which would lift the fed funds rate to around 5.25%. The rate currently hovers at 4.75%-5.00%.

Next month’s hike would be the Fed’s 10th consecutive rate hike since March 2022. The consensus expects two to three rate cuts in the second half of 2023, which perhaps is wishful thinking.

Read This Story: When Assessing Fed Policy, Is Wall Street Hooked on Hopium?

Meanwhile, first quarter earnings season is in full swing, and it’s been a downbeat affair. For Q1 2023, the “blended” year-over-year earnings decline for the S&P 500 is -6.5%. Blended combines actual reported earnings with estimates.

Five of the 11 S&P 500 sectors are reporting, or are expected to report, year-over-year earnings growth, led by consumer discretionary and industrials. Six sectors are reporting, or are expected to report, a decline in earnings, led by materials, health care, information technology, and communication services.

U.S. stocks have trended downward this week, partly due to hawkish commentary from Fed officials combined with worries about the economy. On Thursday, the latest initial jobless claims report showed a softening in the labor market.

The number of Americans filing for unemployment benefits rose by 5,000 to 245,000 during the week ending April 15, the most in one month and above market expectations of 240,000 (see chart).

Source: U.S. Department of Labor

The Fed’s “Beige Book” report on Wednesday described job gains in early April as “moderating somewhat.” The report indicated that consumer spending, factory activity, and construction activity were either flat or down slightly this spring.

The latest economic reports raised the odds of a recession. The main U.S. stock market indices closed Thursday in the red, as follows:

• DJIA: -0.33%
• S&P 500: -0.60%
• NASDAQ: -0.80%
• Russell 2000: -0.54%

Investors will be on edge until we get clarity on the Fed’s next move. But there’s money to be made in the mayhem that creates stock market uncertainty. That’s why we launched the Mayhem Trader investment service two years ago.

Mayhem Trader, helmed by my colleague Jim Pearce, made a lot of money for its subscribers last year, and 2023 is shaping up to be another banner year.

Through painstaking analysis, Jim Pearce has pinpointed one overlooked precious metal that could offer protection and massive profits, regardless of the ups and downs of the economy or the whims of the Federal Reserve. Click here for details.

John Persinos is the editorial director of Investing Daily.

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