Daily Market Notes: 1-20-2023

Even though the market action was not as nasty as Wednesday’s, when a nice opening gain turned into a horrible closing decline, the worst this year, yesterday had the market on its lows at around 12noon, then a recovery rally to cut the losses at 2:30pm and just when things looked like they were going to continue to do better, the nastiness yesterday came in that last 90 minutes.

As an example, the Dow was down by 316 on the day’s low, then rallied back to being off by “only” 128 before that late selloff resulted in a closing decline of 252 down to 33,044. It was hurt by weakness in AMGN, AXP, MSFT and HON.

The S&P followed the same pattern with a 44 point low around 12noon, then a terrific  recovery to “only” 8 points lower at 2:30pm before that late slide ended with a closing decline of 30 down to 3899. The Nasdaq followed a similar pattern and closed 104 points down to 10,852 while the Russell 2000 lost 18 down to 1836.

And once again, the VIX ended only nominally higher at 20.52 which follows the recent pattern of it not doing much in either direction as the market has just bounced around in a very volatile manner but ultimately has gone nowhere over the past several weeks.

Every major index is on track for a weekly loss after the market kicked off the year with a two-week rally. Analysts expect the broader market to remain unsteady as investors try to get a clearer picture of inflation and the economy’s path ahead.

And instead of bad news being good news in the sense that it meant that the Fed would perhaps ease up on its interest rate raising pattern, now the bad news is indeed bad news as it presents the possibility of some sort of recession as for instance yesterday there were weak readings from the January Philadelphia Business Outlook which ended negative for the sixth straight month and December housing starts which were also down. This followed Wednesday’s weak retail sales report, in addition to December industrial production, also lower than expected as well.

The latest economic data show an economy slowing under the weight of last year’s aggressive rate hikes by the Federal Reserve in order to purposely cool the economy  and inflation as well, but also risks a recession in the process.

The central bank has raised its key overnight rate to a range of 4.25% to 4.50% from roughly zero a year ago. The Fed will announce its next decision on interest rates at the February 1st meeting as investors are largely forecasting a raise of just 25 basis points,  down from December’s half-point hike and from four prior increases of 75.

While the economy is showing signs of cooling a bit, Fed officials are out there every day with the mantra that there will be no rate cuts this year, which is contrary to what the federal funds futures market is predicting. This means that one of these entities will be wrong at the end of the year and this is why the market is having trouble finding any clear direction because of these conflicting perspectives.

Fed officials have been closely watching several areas of the economy, including the labor market, to get a better sense of whether inflation is slowing. The latest weekly jobless claims showed a decline of 15, 000 down to 190,000 which was the slowest since last September. This shows that employment remains strong, which is good for workers but makes the Fed’s fight against inflation more difficult.

The yield on the two-year Treasury actually rose a bit, to 4.13% from 4.09% late Wednesday. The 10-year Treasury yield moved up to 3.40% from 3.38%. Bond yields have been mostly falling since the beginning of the year.

Some notable earnings-related losers were FAST, NTRS, SIVB and DFS and FUL. On the other hand, NFLX did well and should hopefully provide at least a higher start to the Nasdaq in today’s session during the monthly options expiration drama.

Then there is the drama over the debt ceiling as the Treasury Department says it has started taking “extraordinary measures” as the government has run up against its legal borrowing capacity. Treasury Secretary Janet Yellen sent a letter to congressional leaders urging them to act to raise the debt limit. The government can temporarily rely on accounting tweaks to stay open probably until June.

The fourth-quarter earnings parade continues this week with the following: yesterday Dow component PG turned higher in addition to CMA and FITB while AAL, FAST, NTRS, KEY, SIVB, DFS were lower; today – NFLX, ALLY, SLB, RF higher and ERIC lower.

Economic reports will have: yesterday – weekly jobless claims fell by 15K down to 190K for the lowest since September, January Philadelphia Business Outlook dropped to -8.9 which was the sixth straight negative reading, December housing starts were down by 1.4%; today – December existing home sales fell for the 11th month in a row.

Donald M. Selkin

Chief Market Strategist


Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our current or potential customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analysis concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, and Associated Press}. It is possible that at any given point in time, the author, Newbridge Securities, or one or more of its employees or registered individuals associated with Newbridge Securities, may hold a position, either long, or short, as well as options, bonds or other instruments in the companies mentioned in this report.