Weekly Market Watch

Topics

  • Overview
  • Key Market Levels
  • This Week / What We Are Watching

Outlook

Market Outlook:

The S&P and Nasdaq continued to rally higher last week as the strength of the US economy continues to surprise pessimistic investors. An analysis conducted by The Wall Street Journal recently proposed that the economy's strength could partly be attributed to the productivity gains driven by the technology sector. Another factor could be the surprising resilience of US banks during the Fed’s unprecedented rate hike cycle. Some of that 2008-09 Dodd-Frank banking-reform might actually be paying off here 15 years later.

Last week’s climb marked the fifth straight week of S&P gains although the index is now likely due for a pullback based on both seasonal factors but also just good old-fashioned profit taking after the incredible rally. Remember the average intra-year decline for the S&P 500 is -14%.  Investors are starting to look past the Federal Reserve’s rate pivot/pause drama and instead focusing on better-than-anticipated economic data and earnings.

CPI Inflation Misses Expectations - Early this week the January CPI inflation report came in slightly higher than expected and the stock market dropped about 1-2% following its release. The CPI miss shouldn’t be cause for concern though as short-term traders were likely already looking for an excuse to book some profits as overbought technical conditions existed heading into the report.

A few other important points made by LPL after the report:

  • Consumer prices rose a bit higher than expected, disappointing markets, but investors could get solace from December’s downward revision.
  • Consumer prices rose 0.3% in January after rising a downwardly revised 0.2% in December.
  • Higher shelter prices contributed over two thirds of the monthly increase.
  • Bottom Line: Today’s inflation report wasn’t exactly what the Fed wants to see since services prices are still elevated and not decelerating enough to their liking. However, investors will have to wait until later this month for a more comprehensive look at consumer prices. We still expect the Fed to make its first cut in May.

Consumers Strong Financially? (Chart) – A lot of pessimistic economic commentators focus their rebuttals against the strong-economy narrative by pointing out the unsustainable rise in national credit card debt, the resumption of student-loan payments and the end of pandemic stimulus handouts. While these are certainly correct observations, they just simply aren’t big enough to offset the structural strength of the US job market and ultimately the whole economy.

The below chart from the NY Fed and Carson Group shows the actual state of both consumers’ total foreclosures and total bankruptcies. Consumer bankruptcies actually fell in the fourth-quarter to 114k from 116k previously. This metric was running above 200k just a few years ago in late 2019.

CPI and Shelter Chart - How much can we blame shelter prices for US inflation? This great chart shows how much the shelter component in red (i.e. rent and homeowners equivalent rent) is contributing to overall CPI in blue. This contrasts with various times last year where the shelter component only made up about 1.5 points of the total 9 points.


Week Ahead – Economic data we’re watching this week includes the January consumer price index on Tuesday and the January producer price index on Friday. Other reports will include January retail sales and industrial production on Thursday and January housing starts and building permits on Friday.

Market Support & Resistance Levels

The next level of resistance to watch for the S&P 500 on the upside is at 5,700.

The next level of support to watch for the S&P 500 on the downside is at 4,800 followed by 4,600.

This Week / What We Are Watching

The following economic data is slated to be released during the week ahead:

Monday: --

Tuesday: CPI Inflation data (Jan.)

Wednesday: --

Thursday: Weekly Initial Jobless, Retail Sales (Jan.), Industrial Production (Jan.), NAHB Housing Market Index (Feb.)

Friday: PPI Inflation data (Jan.), Univ. of Mich. Consumer Sentiment (Feb. Prelim.), Housing Starts and Building Permits (Jan.)

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Updates Regarding News Headlines: SVBank

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Market Outlook & 2022 Recap

Market Watch - January 4, 2023

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Market Watch - November 30, 2022

Market Watch - November 23, 2022

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Market Watch - September 27, 2022

Market Watch - September 22, 2022

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Market Watch - September 6, 2022

Market Watch - August 30, 2022

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Mid Year Outlook - August 8, 2022

Market Watch - August 1, 2022

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Market Watch - June 27, 2022

Market Volatility Update - June 21, 2022

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Market Volatility Update - May 6, 2022

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Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.