The View from 5th Avenue

A bunch of sound and fury that signified nothing this morning as markets opened to declarations of “flash crash” and “cyberattack.” Worry not– it was just a “system issue” at the NYSE, which caused 250 stocks to commence trading without an opening auction price. Not to worry— any trades effected could be declared “null and void.” Ummmkkkk. Shortly after, markets settled, but not before going below yesterday’s closing price. Yields fell as traders remained indecisive in terms of recessionary fears.

US markets in rally mode today as not much from the newswires to interfere. A number of Asian markets are closed for Lunar New Year for at least a majority of the week AND the Fed is now in their quiet period into the Feb 1 FOMC decision. This particular combo leaving less noise to be heard as we kick off a new week where earnings will take the lead role. One positive note that did hit was IMAX reporting 2nd best opening day for Chinese New Year ever- setting a better undertone for the week ahead as well. While it may feel like an exciting feat for the S&P to close above 4k, let’s remember that we were here not that long ago!

Lately the markets have been singing the same ole tune, Steelers Wheel “Stuck in the Middle with You” seems appropriate. SPX continuing to stay in bounds of the latest range with upside resistance of 4100 and downside support of 3800, closing slightly above the 200d (3968). Markets erased almost all this weeks’ earlier losses with both the SPX (+1.89%) and NDX (+2.86%) taking advantage of elevated volumes. The NDX caught the bigger wave today and outperformed, after NFLX (+8.46%) reported subscriber growth of 7.66m, GOOGL (+5.34%) announced 12,000 job cuts and MSFT (+3.57%) closed in the green for the first time this year.

Gotta love this market, which by all accounts seems to be suffering from a severe case of indecision. Major US indices performed a quick about face early afternoon, paring the morning’s losses for no apparent reason. Then sold off again into the close for the same no apparent reason. Brainard took The Fed microphone midday, but he never veered off the script. He acknowledged inflation still remains high and The Fed needs to remain sufficiently restrictive. Nothing to see here. Commodities outperformed — Crude was up over 1.5% at one point, while bonds erased some of yesterday’s gains.

Higher for longer will have to remain a term for the Fed as equities decided to fall back today. After closing above its 200-day moving average for two sessions, the S&P 500 fell back below, ultimately finishing with its worst one-day performance this (short) year. No doubt the Fed is a central theme for the investment outlook, but traders were reminded today that the aggressive rate hikes in 2022 are still in their infancy for economic impact. Data therefore remains the important part of the recession (will it or not happen) forecast and today’s calendar had plenty to offer.

A Tale of 2 Banks seems a fitting title for the day as MS and GS moved in (nearly) equal and (decidedly) opposite directions today as the headliners in the resumption of earnings season following a lovely long-holiday-weekend for those of us here in the States. The former rallied (+5.9%) on an inline set of results with the highlight on its wealth mgmt division, while the latter got punished (-6.44%) for falling short on topline revs and higher expenses.

After a rough start to the year, markets have charged back and the S&P is now up 4.1% ytd, following Nasdaq’s 5.8% rise. A theme for this year was the intensity of inflation, and when/ how quickly it might turn lower. And yesterday’s sequential decline has given hope to those expecting FOMC rate cuts later in 2023. As a follow up to that CPI data, University of Michigan today was better than expected (64.6 versus estimates of 60.5), with the 1-year inflation component falling to 4% from 4.4% in December.

Survey says……6.5% YoY! That’s right folks, CPI continues to trend in the right direction and reports in line with estimates. Traders have been waiting with bated breath since the beginning of the new year, hoping to see a CPI print that could bring some positive energy back to the markets. While today was a welcomed improvement in CPI, most were hoping to see it come in below estimates and the market’s reaction was in line with these expectations. On top of the data, we heard from multiple Fed speakers today.

No news, no data and no Powell, equated to another market pop today. Based on the past week of predictions from various strategists, the only thing we do know is that the market will move violently, depending on where CPI comes in. Most resources put very small probability on a hotter CPI (above 6.6%), thus high expectations for a downside surprise (CPI fixings market has been flawless over the past year and expects a -0.13% m/m SA headline print).

Powell stole the show today… Sometimes it’s all about what you DON’T say, and today certainly felt like that was the (bull) case for markets. Side-stepping much of any word on economic or monetary policy, aside from a generic affirmation that the Fed is tightly focused on meeting inflation and employment goals, the Chairman instead shifted the attention to establishing boundaries around the Fed’s limited role in climate regulation.