Daily Market Notes: 2-1-2023

In one of the great “Turnaround Tuesday’s” of all time, the various stock index futures were sharply lower in the overnight session and into the early morning hours yesterday.

But as the 9:30am opening drew closer, they actually went positive due to some better earnings reports (see below), and they were also helped by the 4Q Employment Cost Index which rose by less than expected to a gain of only 1%.

From there it was up, up and away as the market grinded higher all session and then finished with an upside bang to end right at its best levels as the Dow and S&P more than offset the large declines from Monday to start the week.

So when all was said and done, the Dow ended with a 369 point closing advance to 34,086 led by gains in GS, HD and MSFT. It was the seventh gain in the past eight sessions. The S&P once again did better on a huge upside day with a 59 point gain to 4076 which was its best start to a year since 2019 as it got help from advances in the former technology leaders who have done really well this year. The Nasdaq gained 190 up to 11,584 while the Russell 2000 Index of small stocks added 46 to 1932.

And naturally the VIX ended lower on the higher equity session at 19.40.

This gain was ahead of today’s major event with the 2pm announcement of a 25 basis point interest rate hike after 50 last month and four jumps of 75, so the pattern is definitely slowing. But the only problem is that the Fed does not want to see such a strong stock market and that leaves things vulnerable to a hawkish tone by Chair Powell who could very easily say that rate hikes are going to continue for the rest of the year which is opposite to what the federal funds futures market is saying, namely that there will be one more hike in March and then there will actually be declines in rates for the remainder of 2023. This is not the likely scenario which could leave things vulnerable to some downside today, especially in light of the huge upside advances yesterday.

And this is why we urge those who want to enter the market today to wait until the dust settles after the announcement and then the 2:30pm news conference to follow.

Treasury yields fell immediately after the release of the report on employment costs and the other weak reports, before paring their drops. The yield on the 10-year Treasury slipped to 3.50% from 3.54% late Monday. The two-year yield dipped to 4.20% from 4.24%.

Two large Dow components sold off after their reports, going opposite to the overall trend of the day as MCD fell despite reporting stronger profit and revenue than analysts expected. What may have disappointed was their forecast for upcoming profit margins. They could imply inflation and cost pressures may be continuing to squeeze the company. CAT fell after it reported weaker profit than expected but stronger revenue.

On the winning side was GM with a large gain after reporting stronger profit and revenue than expected. In addition, SPOT and PHM did really well also.

There are a huge number of earnings reports this week and the lineup is as follows: yesterday – HUT, PFE, MPC and Dow components CAT and MCD lower while WHR, GM, SPOT, UPS, XOM, PHM, IP, AOS, PNR were higher; today – JNPR, SNAP, EA, WDC, MTCH and Dow component AMGN lower while AMD, PTON,TMUS are higher; tonight –  META.

Economic reports will have: yesterday – January Consumer Confidence fell to 107.1, January Chicago Business Barometer fell to 44.3, November CaseShiller Housing Market Index was lower by 3% and the 4Q Employment Cost Index rose by only 1%; today – December JOLTS job openings rose to 11 million, ADP jobs estimate is only 106K but they have a history of being way off, ISM January Manufacturing Survey came in lower at 47.4 and the Fed interest rate decision at 2pm; Thursday – weekly jobless claims, December factory orders, final December durable goods orders; Friday – January non-farms payroll report for which the estimate is 185, 000, unemployment rate, average hourly earnings, monthly revisions, labor force participation rate.

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.