The View from 5th Avenue

After last week’s hyper economic data releases, investors have had to suffice with a quiet week so far. While Fed heads have been released from their pre-FOMC quiet period, there has not been a rush by them to speak their minds. That quiet changed today for a brief period as the markets heard from both Kashkari and Powell, the latter having the most impact. Traders are battling the Fed about peak rates and when potential cuts may come, and after the Nonfarm payrolls Friday, the Fed seems to be…

I thought Tik-Tok was China’s surveillance tool, isn’t a balloon getting just a little greedy? Not to mention lazy; worst covert op ever? At least we know one thing that’s going to have a hard landing. As for the market, the debate continues, participants toggling back and forth between hard and soft when it comes to the economy and by extension the market. At least until Friday when the bonzo jobs report brought ‘no landing’ into the lexicon. Predictions for H1 ’23 were far from sanguine, and…

It may be cold outside, but that’s not enough to cool the scorching hot job market. The markets were shocked today when the change in nonfarm payrolls reported a gain of 517k, blowing out the estimate of 188k. The unemployment rate is now 3.4%, the lowest since 1969 while the ISM services index jumped to 55.2. The case for the Fed to make an early pivot seems to be fading as economic data remains strong and inflation lingers. Rates skyrocketed (US10Y 3.53%) on the backs of the job data. CME data now shows some traders are predicting a Fed terminal rate above 5% and others pushed their cut predictions back to December 2023.

It has been a tumultuous twenty-four hours for the markets, and that will continue to be this week’s theme as investors wade through the AAA earnings, and Nonfarm Payrolls. Markets have been watching the deteriorating eco data recently and have decided that the Fed will not only terminate its hiking cycle at 5%, but also start cutting at year end. First it was only a 25bps, but after yesterday’s FOMC meeting, that has grown to 50bps. In Powell’s defense, he did reiterate the Fed’s intent to be “appropriately restrictive” until inflation is under control, but acknowledged that investors needed to do their thing.

Ok then, this year seems hellbent on disproving the theory that objects in your mirror are closer than they appear. Last year is starting to feel like a distant memory rather than merely one that ended a month ago.. A quick stat to provide some context: a > 5% move in January after a down year the year before has happened only 5 times. The S&P 500 has been up EVERY time and by an average of a whopping +29.7% (45.0%, 23.1%, 20.1%, 31.5% and 28.9%). That’s a SPICY meat-uh-ball.

January made its mark today —the first green Jan since 2019, as the S&P and Nasdaq rallied 1.5% and 1.7% respectively, positively punctuating the first month of ‘23. It was the Nasdaq’s best month since July and some say as January goes, so does the year. But that hasn’t been accurate in the recent past, so best to take that one with some electrolytes. Nevertheless, investors interpreted today’s easing labor cost data as supportive of inflation cooling, and therefore also supportive of the potential for easing in terms of hike magnitude and pace. And maybe even halting just short of a terminal 5%, despite what has been preached from the Fed pulpit prior.

A moment of pause in markets today. Lower. We’ll call it a healthy pullback, void of any major catalysts, amidst an otherwise quiet session as markets and participants take the day to sharpen their tools for what lies ahead this week. All sectors, save for one on the margin, closing in the red with ~80% of the S&P falling lower in Monday trading. In sector performance, some minor reversion with YTD laggards (+Staples, Utilities) floating to the relative ‘top’ and Energy, Tech leading the decline.

Yawn! We close out the week with the most in line economic data we have seen in a while. With the Fed in the middle of their quiet period, many looked to today’s PCE data to provide a better understanding of what the Fed may be planning for the upcoming FOMC meeting next Wednesday. The PCE core deflator YoY reporting in line with estimates (4.4%), left traders in limbo while market movements lacked conviction in both directions. The SPX (+0.25%) remains within its current range with resistance at the 4100 level. While PCE data is still more than double the Fed target, they did see some data points moving in their favor.

It’s thirsty Thursday, and that seems appropriate as markets have been lapping up assets in January. Whether because they have been underweight after a rough 2022, or in anticipation of a soft landing, the support has been appreciated. Obviously there remains a lot of moving parts to this year’s outcome, but it seems easier to look forward since the Fed is closer to the end than the beginning. Equities built upon yesterday’s rally and finished at their highs once again. But today, the Russell 2k finally closed above the 1900 level, a resistance level our technical team is watching.

Well this was an interesting day. Mega-cap tech has long been the apple of investor’s eyes last year notwithstanding of course. All equities had a rough go of it but none more so than the growthy high fliers. 2023 has proven to be a new year for stocks the world over, and after a slow-ish start, tech has found it’s footing. Not even a stumble from Microsoft earnings last night seemed to present little more than a temporary obstacle to where the market wants to go.