February 13, 2023
Good morning,
Markets were quiet overnight, reluctantly inching higher into early morning trading (+0.25% on Futures, 90min before the open) as this month’s most important reading on inflation approaches the 24 hr. mark. January’s Consumer Price Index (CPI) prints tomorrow at 8:30am ET and is the event of the week.
Last week, the bond market began reconsidering the Fed’s rate path – it now expects policymakers to take rates to a peak of 5.25%, and then cut by about 25 basis points this year – and that repricing may continue in the coming week. The Jan. CPI may illustrate a point Fed Chair Jerome Powell has made several times – which markets didn’t heed until this past week – that disinflation is just beginning, and the process will likely be bumpy.
Most likely in response to the move in rates, equities also corrected a bit last week with an S&P 500 Index decline of -1.11%. Sentiment readings are still overbought but off their extremes and it is likely that the correction has more to go. But even the casual observer can see that the beginning of this correction is much milder than any of the pullbacks over the past year.
And that is the point of all the recent talk about this month’s change in trend. The equity market’s trend has gone from negative all year last year to positive at the beginning of this month. The trend is a backdrop against which all short term moves in the market are measured. Market declines against the backdrop of a negatively trending market are stronger than they are against the backdrop of an upwardly trending market and vice versa. Is last week’s correction over now – probably not. But is last week’s correction the start of a deep, steep sell-off like the ones we lived through all last year – also less likely.
Be well,
Mike