January 30, 2023
Good morning,
Overnight Futures are off almost -1% this morning, ahead of a big week for investors. With two days left in January and the S&P 500 Index up +6.11% month-to-date, professional investors and allocators may trim a bit of risk before month’s end. Especially with February set to open with a bang as the results of the first FOMC meeting of the year are announced. The market seems to be anticipating a 25 basis point hike in rates, but may be more concerned with comments from the Fed on policy rates in the second half of the year. A nearly 40-bp-plus drop in policy rates in the 2nd half is implicit in the current pricing of futures. It’s difficult to see the Fed endorsing anything like that on Wednesday.
In addition, this week, we have more earnings announcements. About 30% of S&P 500 companies have reported so far this earnings season, with about half beating sales estimates and around 70% exceeding earnings consensus. This week, Big Tech firms – including Apple, Alphabet (Google) and Meta Platforms (Facebook) – will be expected to offer details on their growth outlook, particularly considering recently announced layoffs that slashed more than 52,000 jobs and ongoing supply chain hiccups.
All this, and we observe that short-term sentiment is more bullish (bullish sentiment = bearish signal) than any time in three years. We could be in for a market pullback of some sort following what has been a surprisingly strong start to the year. This is not a forecast of calamity, but pullbacks do normally follow rallies.
Be well,
Mike