Daily Market Notes: 2-21-2023

The market ended another lower week with a mixed performance that was more typical of the price action this year by once again rallying from morning lows and improving that level going into the close rather than fading out into the close as it had done the day before.

The Dow began with a 179 point decline and got positive at 2pm and kept going from there until it finished with a 130 point final advance to 33,826 led by gains in health-care issues for a change, as AMGN, JNJ, MRK, PG and UNH all advanced. On the other hand, it is now lower for three straight weeks.

The S&P also improved as the day wore on, as it was able to turn a 43 point opening loss into one of “only” 11 to 4079 while the Nasdaq did the same with a 182 point opening low turning into a 68 point close at 11,787. Despite these better showings, the S&P closed lower for the second straight week on new concerns about rising interest rates and worries that inflation is not cooling as quickly or as smoothly as hoped based on the January C.P.I. and P.P.I. reports that were released last week.

The Russell 2000 Index of small stocks managed to eke out a small gain of 4 points while the VIX actually ended slightly lower even as the S&P was lower as well at 20.02, down from 21.3 when the market was down at its worst early levels as mentioned above.

Stocks have hit turbulence in February after shooting higher in January with hopes that cooling inflation could get the Federal Reserve to take it easier on interest rates and that the economy could avoid a severe recession. Reports recently have shown more strength than expected in everything from the job market to retail sales to inflation itself, raising worries that the Federal Reserve will have to get tougher on interest rates.

This has forced a sharp recalibration as investors move their forecasts for rates closer to the “higher for longer” stance that the Federal Reserve has long been espousing. The hope is that high rates can drive down inflation, but they also hurt investment prices and risk causing a severe recession.

Some economists added one more hike by the Fed in June to their forecast, meaning they see its key short-term rate ultimately rising to a range of 5.25% to 5.50%. That rate was at virtually zero a year ago, and it hasn’t topped 5.25% since the dot-com bubble was deflating in 2001. It is currently at a range of 4.50% to 4.75%.

The fear is that if inflation proves stickier than expected, it could push the Fed to get even more aggressive than it has prepared the market for. Such movements have been most clear in the bond market, where yields have soared this month on expectations for a firmer Fed.

The two-year yield topped 4.70% in the morning, up from 4.62% late Thursday and from less than 4.10% earlier this month. It later pulled back to 4.61%. It has recently approached its highest levels since November, when it reached its highest point since 2007.

Still offering some support to the stock market are remaining hopes among investors that the economy can avoid a worst-case recession. Jobs are still plentiful, and shoppers are still spending to prop up the most important part of the economy, namely consumer spending. That has helped the S&P to hold onto a gain of 6.2% since the start of the year.

But critics say many of those areas also tend to be among the last to feel the effects of higher interest rates and may still crack. And the Fed has already raised rates by the most aggressive pace in decades.

Big technology and other high-growth companies have been taking the brunt of worries about the Fed because they are some of the most vulnerable to higher rates. Their stocks soared in earlier years in part because of record-low rates.

Energy stocks, which were last year’s upside heroes and started out this year strong, showed some weakness again as the price of crude oil has come down, to around $77 a barrel.

On the winning side was DE, which did nicely after reporting stronger profit for its latest quarter than analysts expected.

The fourth-quarter earnings reporting season is now in the home stretch and retailers usually predominate with this week’s lineup as follows: today – Dow component HD lower and now WMT higher, plus IR, MEDT, Coors; tonight – PANW, COIN, CBRL, SKT, TOL; Wednesday – BIDU, NVDA, EBAY and TJX; Thursday – BABA, ADSK, BKNG, INTU, MRNA, NEM, WB.

Economic reports include: today – January existing home sales fell by 0.7% for the 12th straight decline to the lowest since October 2020; Wednesday – release of minutes from last Fed meeting; Thursday – 2nd estimate of 4Q G.D.P., weekly jobless claims; Friday – January personal income and spending.

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.