February 6, 2023
Good morning,
Last Monday’s Morning Note finished with a concern of an overbought market possibly pulling back with a Fed Meeting and Employment Report to get through. What I did not anticipate was the market’s willingness to continue to interpret Fed Chair Powell’s narrative as dovish. Even with Friday’s -1.04% decline in the S&P 500 Index (SPX), the Index finished up +1.62% on the week.
This week is pretty quiet in the way of macro data. About half of the S&P 500 companies have yet to report, with a few more big consumer companies to announce this week. However, earnings thus far have been just a sideshow for the market compared to the macro news (inflation, rates, recession).
During his press conference last week, when asked about the market pricing looking like it was ahead of the Fed, the Chair responded, “The Fed has its forecast, the market has its forecast – they currently differ.” The market is now more short-term overbought than at any time in over 10 years. Fed presidents will be speaking at various venues all week, reiterating a tighter narrative than the markets have priced in. My concerns for a pullback remains.
It is worth noting, however that technically, with its recent strength, the market trend has officially changed from a bear market to a bull market. No fanfare, and we did mention that this would likely happen in last Friday’s Morning Note (1/27/2023). I mention this again now because market pullbacks are typically less severe in a bull market than in a bear market.
Be well,
Mike