Daily Market Notes: 2-22-2023

Unfortunately there was no miracle rally during the day yesterday like there was last Friday, when stocks improved from their worst intraday morning levels.

Instead it was a lower opening and then it was down, down down into the close and as a result, the market put in its worst performance since last December 15th with the Dow finishing lower by a huge 697 points to 33,128 as a poor earnings report from HD accounted for 111 points of those just by itself. In addition, there was huge selling in BA, CAT which have both done well this year, in addition to UNH.

The S&P did worse on a day like this as it usually does because it catches the negativity from the large technology stocks which sold off badly as well and ended down by 81 to 3999. And as usual the booby prize went to the Nasdaq with a 295 point shellacking down to 11,492.

The Russell 2000 Index of small stocks got whacked by 58 points to 1888 and the VIX rose higher to 22.87 as once again that 18 level held on the downside and this area should be a warning if it were ever to get down to that area again that things are due for a beating.

And once again, it was the specter of rising interest rates doing their negative number on stocks as the 10-year Note leaped further to 3.95% from 3.82% late Friday. The two-year yield gained up to 4.72% from 4.62% which is the highest level since 2007.

Several reports have come in recently to show that the economy remains stronger than expected. This can take away fears that the economy may soon fall into a recession, which should be a positive for the market, but on the other hand they also fuel upward pressure on inflation and give the Fed more reason to stick to the “higher for longer” campaign that is has been putting forward for rates.

The services industry likely returned to growth last month and was at an eight-month high, according to S&P Global. Manufacturing, meanwhile, may still be contracting, but that reading still hit a four-month high.

The Fed now says that it sees short-term rates rising to 5.1% by the end of this year with the earliest cut to rates not happening until next year. After earlier thinking the Fed would ultimately take it easier on rates than it was talking about, investors have now  come closer to the Fed’s view.

The worry is that the Fed could ratchet up its forecasts for rates further next month at the next meeting as besides showing more strength in the job market and retail sales than expected, the recent C.P.I. and P.P.I. reports have also suggested that inflation is not cooling as quickly and as smoothly as hoped. Investors are also pushing back their forecasts for when the first cut to rates could happen.

Those worries have caused a stall for the strong rally that started the year as after gaining as much as 8.9% in 2023, the S&P is now ahead by 4.1% for the year so far.

While the job market and consumer spending have been resilient in the face of higher interest rates, some pockets of the economy are showing more softness as for instance the January existing home sales report slowed to their weakest pace in more than a decade. This resulted in homebuilder stocks selling off.

The fourth-quarter earnings reporting season is now in the home stretch and retailers usually predominate with this week’s lineup as follows: yesterday – Dow component HD lower plus DDS, SKT, IR, ZIP and component WMT higher, in addition to TAP, GIS;  today  – PANW, TOL, GBRL, WING, BIDU higher and TJX lower; tonight – NVDA, EBAY, CAKE, ETSY, LMND, BMBL, CAKE, LCID; Thursday – BABA, ADSK, BKNG, INTU, MRNA, NEM, WB.

Economic reports include: yesterday – January existing home sales fell by 0.7% for the 12th straight decline to the lowest since October 2020; today – 2pm 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.