March 6, 2023
Good morning,
The S&P 500 Index (SPX) ended up +1.90% last week, its first up week in the last four. I think that puts February’s correction in the rearview mirror. Asset markets (stocks, bonds, commodities, currencies) remain in a kind of myopic phase, where the only driver of return expectations seems to be monetary policy. That myopia will get its fill this week with Jerome Powell speaking to Congress on Tuesday and Wednesday where he is expected to reiterate the Fed’s higher for longer rate policy narrative designed to tame inflation. The second half of the week is all jobs data with minor reports on Wednesday (JOLTS job openings and payrolls service provider ADP’s reading), weekly jobless claims on Thursday, and then comes the key-data release, the BLS monthly payrolls and unemployment report on Friday.
There have been two differing monetary policy narratives for months now: 1) the Fed’s higher-for-longer tightening cycle narrative and 2) the market’s Fed-will -pivot-soon narrative. The spread between the narratives has narrowed over the past few weeks with rates moving higher and bond and stock prices lower. If the employment data this week supports the Fed’s narrative, that spread may narrow further and provide some more tough sledding for bond and stock prices going into the next Fed meeting on 3/21-22. We shall see…see you Wednesday.
Be well,
Mike