The search for positive news

Stocks gave up early gains on Friday for a close in the red. Putin’s early morning assessment that there were positive shifts in discussions was simply not enough to keep stocks in the green.

Sprung forward.  Well, it happened as Saturday turned into Sunday. Yesterday, I, like most of you, could not quite get a handle on what time of day it really was, but for the wrong time on my microwave…or was it the right time? My mechanical wristwatch told me one thing, my phone yet another, but my stomach seemed to win out as it knew exactly when it was dinner time. I woke up this morning hoping to write about how the robins in my garden had begun to get boisterous as the sun dawned. But alas, the sun will now bless us an hour later than last week, so maybe I will keep that story for another day.  Instead, what came to my mind as I reviewed all the overnight news and market information from across the globe, was something difficult altogether. My weekend was spent fixated on the news. Print, electronic, television, telephone, or wherever I could come by it. Most of it was repetitive and all of it was unfortunately dark.  During the workweek I consume lots of news as it relates to the economy and the markets. Saturday news is optional and generally reserved for human interest and sports. On Sunday, my mind begins to fall back on the markets. Believe it or not stock futures begin to trade at 6 PM on Sunday night, which is for all intents and purposes when my work week starts. I try to occupy myself with other interests such as cooking, eating, or Netflix, knowing that it is there…the market, already starting to factor in all that occurred in the world since Friday at 4:00 PM EDT (though technically the markets trade until 8:00 PM) until Sunday 6:00 PM EST.

The week ahead would be a big one during any time. It is Fed week, when the Federal Reserve’s FOMC will meet and vote on monetary policy.  This week always brings potential for volatility; however, this upcoming week is a special one.  This is the week that the Fed had signaled quite strongly was going to be liftoff week – rate liftoff that is. The Fed has been talking about “the March meeting” for some time and the futures markets have predicted rate hikes also, for some time. If there was any uncertainty around the question of “if”, last week’s CPI showing inflation at a 40-year high should have answered the question. If you hadn’t seen the CPI release last weekend, you would have known it if you filled your car up with gas this weekend and realized that it cost more to fill up. According to AAA, the national average for a gallon of gas had reached $4.32. That was around +$0.32 more than just a week before. You weren’t surprised, because you heard about the US oil embargo on Russia, but then you realized that gas was only $3.48 just a month ago, which was before Russia invaded Ukraine, and it was $2.84 a year ago. That is a trend which could only be described as going up and accelerating. In inflation terms, that is “bad and getting worse.” We all know this by now, so we expect the Fed to raise rates to slow down inflation. The Fed has kept interest rates at 0% for the past 2 years to incent consumers to spend money to grow the COVID-ailing economy. Now, with the economy growing a bit too fast and causing inflation to run up, the Fed is going to raise rates with hopes of incenting consumers to pull back…spend a bit less, which should hopefully allow inflation to return to tenable levels. With such hot inflation, markets, a month ago were predicting the likelihood of a +50 basis point hike in this meeting, which quickly receded to +25 basis points once Russian tanks rolled into Ukraine. 

So, here we are with the S&P500 trading around -12% lower than its January all-time high. That is considered correction territory. The Nasdaq Composite Index, which is a good representative of growth stocks, is now right around -20% below its November 2021 all-time high. That is literally the cusp of a technical bear market. The VIX volatility index is just below its highest level in the past year. There is a war in Eastern Europe, Iran has claimed responsibility for a missile launch on what would appear to be an American base in Iraq, COVID is still raging globally with China now experiencing a surge, inflation is high, fuel prices along with other necessities are vaulting higher… and the Fed is going to raise interest rates. Have I gotten your heart beating faster yet? You are probably wondering if the Fed’s expected +25 basis point rate hike is a bad idea. The reality is that it is not only likely to occur, but it will likely happen several more times this year. It is important to remember, that even at 1.5%, the Fed Funds rate is not high at all by historical standards and that is it unlikely to even cause consumers to stop spending money. Consumers are most likely already tightening their purses as inflation has eaten into their discretionary budgets. If that hadn’t done the trick, perhaps the weekend news cycle did it. As I write this report hoping to hear my robins start to sing, I looked out into my yard and saw only darkness when just last week I would see hints of dawn, and I was reminded of the old saying that “the darkest hour is just before the dawn.”

FRIDAY’S MARKETS

Stocks started Friday’s session on a positive footing after Putin announced that talks were heading in a positive direction, however the admission was not enough to keep worried traders from selling and pushing the markets into the red.  The S&P500 gave up -1.30%, the Dow Jones Industrial Average lost -0.69%, the Nasdaq Composite Index dropped by -2.18%, the Russell 2000 Index fell by -1.60%, and the S&P500 ESG Index declined by -1.30%. Bonds fell and 10-year Treasury Note Yields gained +1 basis point to 1.99%. Cryptos fell by -2.78% while Bitcoin gave up -1.19%.

NXT UP

• We still have some earnings bubbling in this upcoming week. Economic releases this week include housing numbers, regional Fed reports, Retail Sale, Producer Price Index, and the FOMC Monetary Policy Meeting. Please refer to the attached earnings and economic calendars for details.