Not a big news week for the markets as the most notable thing was the many Fed Governors on the speaking circuits where some talked tough and others indicated a nearing of a terminal rate. I get the sense that some of them are playing poker with the markets and they will show their cards later this month on the 22nd.
The Stock Market
The markets were left to trade on their own machinations this week and despite the gloomy outlook by many fund managers the market made a reversal higher on Thursday. How the S&P trades in the coming month could dictate the tone for several months.
To review, the S&P has remained below the green trend line in the chart below since the previous all-time high in January of 2022. The S&P was able to breakout though this trend line at the end of January making a peak on February 2nd at $418. After a month-long pullback, the S&P re-tested the trend line (almost) and reversed higher on Thursday. Going into Thursday’s session there were signs in the volatility complex signaling downside was limited meaning the sellers got exhausted and theft the door open to buyers.
Can the bulls keep charging higher? At this point the momentum has flipped positive as we head into the payroll number on Friday. The chart has a nice barometer with two pivots at the 12/22 low at $375 and the 2/2 high at $418 so we will look to see which level is crossed next to gauge the larger trend regarding momentum. Bulls seem to have an edge now as many stocks have been beaten down over the last 12-18 months to levels that are now considered attractive as supply chains improve and China’s economy emerges from COVID disruptions.
Next week we have the February payroll number, then CPI/PPI inflation data the week after and then the Fed on the 22nd. Should make for an interesting month of trading as each are potential catalysts for the stock market.
The Bond Market
The blue line in the chart below is from the close on Friday and we are now seeing the front end move above 5% with the 1Yr tenor leading the way. The curve has shifted up and to the right and there are now oversold conditions in the longer tenors which led to higher prices to close the week. Bonds can get oversold too and I think we should see some relief next week from this technical condition.
- The February ISM Services Index came in mostly unchanged from January at 55.1 where 13 of 18 industries reported growth.
- The S&P Global February Services Index was reported at 50.6 which was the highest level since last June. “The upturn was led by a revival in spending on services by consumers but the impact of higher interest rates and inflationary pressures remained a drag on customer spending.
- February Automotive Sales totaled 14.89mm at an annualized rate which remains below the 16.83mm reported in February of 2020. The industry remains restrained by the supply chain so this number should improve in 2023.
- Pending Home Sales in January jumped 8.1% compared to December as all regions saw increases in contract signings. The NAR said commented, “Buyers responded to better affordability from falling mortgage rates in December and January.”
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President, Kisco Capital