After Tuesday’s decline for the worst loss since mid-December, the market tried to pull off a delayed “Turnaround Tuesday (aka Turnaround Wednesday)” yesterday and bounced around between small gains and losses before ending mixed,
The Dow got to as high as a 116 point gain at 1:30pm before a negative interpretation of the release of the minutes of the last Fed meeting sent it into a selloff going into the closed and it ended with a final decline of 84 down to 33,079. It was hurt by selling in AMGN, CAT and WMT which had managed a strange gain during Tuesday’s downside disaster and then gave it back more than three times yesterday.
The S&P also moved back and forth into and out of positive territory and was 20 points higher before the release of the minutes, then fell to a decline of 21 points at 3:30pm before cutting that loss to 6 to finish at 3991.
The Nasdaq was the relatively steadiest one of all as it got as high as a 90 point gain before finally ending 14 higher to 11,507 as it was helped by some advances in PANW on nice earnings, plus TSLA and AMZN.
The Russell 2000 Index of small stocks eked out a 6 point advance up to 1894 while the VIX came back down to 22.29 as it remains in that very narrow range..
After leaping at the start of the year, stocks have hit a wall in February on worries that inflation may not be cooling as quickly or as smoothly as hoped. That has experts raising their forecasts for how high the Federal Reserve will take interest rates, as well as for how long it will keep them at that level.
High rates can help drive down inflation, but they raise the risk of a recession because they slow the economy. That recalibration, which earlier was betting that moderating inflation would soon get the Fed to take it easier on interest rates, has caused yields in the Treasury market to shoot higher this month.
The yield on the 10-year Treasury is near its highest level since last November. It pulled back a bit from its surge on Tuesday, dipping to 3.92% from 3.95% which took some pressure off stocks yesterday. The two-year yield fell to 4.69% from 4.73%. It is also near its highest level since November and if it tops 4.75%, it would be at its highest since 2007.
Traders have in recent weeks called off bets that the Fed could cut rates later this year. Now they are in closer alignment with what Fed officials have been telling the market for months, if not preparing for even more increases. Investors are penciling in at least two more rate hikes of 25 basis points and even the possibility of 50 at the next meeting in late March, but there will be many major economic events before that meeting so it is sort of a waste of time to consider this possibility at the present time.
The Fed has brought its main overnight rate up to a range of 4.50% to 4.75% from virtually zero at the start of last year. The minutes from the central bank’s last meeting showed policy makers still think inflation is too high and that interest rates need to rise further. “A few” officials even said they preferred raising rates by 50 basis points at its last meeting, which was double the size of what the Fed actually did. This is probably why the market sold off from its highs just before the meeting as mentioned above.
And that discussion came before a slew of stronger-than-expected reports on the labor market, retail sales, C.P.I. and P.P.I. increased the inflationary pressures.
The disappearing hopes for a rate cut this year along with rising expectations for how high rates will ultimately go, have dragged down the S&P’s gain for the year to 3.9%. Earlier this year, it was up as much as 8.9%.
A relatively lackluster earnings reporting season for the fourth-quarter is winding down, and some of yesterday’s biggest losers dropped despite reporting better results than expected. That is because investors have been putting more emphasis on what companies say about their upcoming results, with worries about rising costs and inflation eating into profits.
CRL dropped by 10% despite topping forecasts for the latest quarter. It said it received a U.S. Justice Department subpoena related to shipments of non-human primates that the company received from its supplier in Cambodia. The company said it voluntarily suspended such shipments, which pushed it to cut its forecast for revenue this upcoming year.
KEYS tumbled by12% for the largest loss in the S&P despite also reporting stronger profit and revenue for the latest quarter than expected. Analysts pointed to its reporting of softer orders than forecast.
On the winning side was PANW and FANG which reported better than expected results, and raised their forecasts going forward.
The fourth-quarter earnings reporting season is now in the home stretch and retailers usually predominate with this week’s lineup as follows: yesterday – PANW, TOL, GBRL, WING, CRSP higher while BIDU, TJX, CRL, ZIP, KEY COIN were lower; today – NVDA, ETSY, INTU, BABA higher while CAKE, LCID, EBAY, DPZ, LCID, FIVU lower; tonight – ADSK, BKNG, MRNA, NEM, WB.
Economic reports include: yesterday – 2pm release of minutes from last Fed meeting (see above); today – 2nd estimate of 4Q G.D.P. came in at 2.7%, weekly jobless claims fell by 5K to 192K; 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.