February 23, 2023
Good morning,
For all the anticipation of the Fed minutes yesterday, they didn’t really move the needle much at all. In any event, overnight price moves have generally reversed yesterday’s modest moves.
Thus far, February has been a month of correction with markets reversing January’s surprisingly strong price gains. The correction in bonds has been about twice that of equities. Bond yields are up more so far this month than the big drop witnessed in January. Stocks, via the S&P 500 Index (SPX), have given back about half of January’s gains so far this month, supporting the notion that equity corrections are milder in an up-trending market than they are in down-trending markets.
I do not know if this month’s correction is over yet but I sense that it might be going on pause for a few weeks. Markets have been unusually myopic for months now, focused squarely on the magnitude of the duration of the Fed’s tightening cycle. The Fed has endlessly repeated that it is data dependent. And while the PCE (Personal Consumption Expenditures Price Index) price figures comes out tomorrow, there is quite a gap until the next bits of key Fed-mandate data print. Monthly payrolls are unusually late next month (3/10) and will be followed quickly thereafter by CPI (3/14), leading into the Fed’s next meeting (3/22).
There is technical support for a pause as well. Severely over-bought conditions present at the end of January have eased – not yet into bullish over-sold territory, but at least not weighing on the markets now. Plus, the SPX has corrected right back down to its 50 and 200 day-moving-averages – historically good areas of support.
No note tomorrow, have a nice weekend and see you on Monday.
Be well,
Mike