Market Pull Back Trend? | February 10, 2023

AUTHOR: Jason Roque, MS, CFP®, APMA®, AWMA®
TITLE:       Investment Adviser Rep – CCO
TAGS:   S&P 500, NASDAQ, FRB, Oil, Earnings, Sentiment

Markets pulled back this last week. What could happen this week to make that turn into a trend?

Monday   S&P 500 0.61% | NASDAQ 1.00%

The Federal Reserve Bank (FRB) dominated the trade even with no news on the day. The NASDAQ led markets lower, and yields rose across the day. The adjustment signals investors relenting that the FRB may not be as close to done raising rates as originally thought. This is a result of the economy continuing to show resilience and strength.

Tuesday   S&P 500 1.29% | NASDAQ 1.90%

The major event on Tuesday was an interview with FRB Chair Powell. This was a first chance to get his reaction to the strong jobs report out this past Friday. He still seemed dovish, while having hawkish tones regarding how long they may stay at an elevate rate level. Additionally, oil stockpiles surprisingly fell last week–a drawdown results in prices moving up.

Wednesday   S&P 500 1.11% | NASDAQ 1.68%

The move on Wednesday was induced by the corporate earnings season that is nearly complete. Meaningful misses and negative forward guidance dominated the headlines. Even with the negative day, earnings season has not been a disappointment with 73% of companies meeting (lowered) expectations. The real concern is future guidance. If corporate America is to be believed, the consumer is preparing for hibernation. Blue chip consensus if for Negative GDP in the first quarter. It can also be noted in the stall in corporate capital expenditures over the past year.

Thursday   S&P 500 0.88% | NASDAQ 1.02%

Markets sold off on Thursday as earnings season starts to close out. The selloff came on higher short term interest rates. The move came as investors feel the FRB will have to do more damage to the economy. They need to get spending to slow to a pace that will slow inflation.

Friday   S&P 500 0.22% | NASDAQ 0.61%

Consumer Sentiment carries more weight as of late due to the impact that consumer spending has on inflation. The metric is expected to move up for February. That move signals a need for the FRB to be more aggressive, not less. That signal gave growth stocks reason for pause on Friday, as indicated by the NASDAQ’s performance.

Conclusion   S&P 500 1.11% | NASDAQ 2.41%

The week saw markets shed weight, something that thus far has been rare for 2023. This appears to be a hangover effect from the rate hike last week. While markets expected the 0.25% increase, there seems to be more uncertainty around when the FRB may stop raising rates. The more economic and inflation data that shows strength, the more hikes that should be expected. The difference between this year and last week is not markets losses, but that economic data showed strength. Look for the ‘good news is bad news’ trend to continue. This week has crucial CPI data being released and it is likely that it firmed slightly last month, even if the reading falls.

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