Daily Market Notes: 2-9-2023

I had mentioned that every time the VIX gets into the 18 level, it signals an overbought condition and inevitably the market declines the next day, which is what took place on that huge rally on Tuesday and then yesterday’s comedown. This means that for the present time, things are just chopping around in a range with no clear-cut direction at the present time as the uncertainty about the Fed’s intentions on interest rates and inflation is dominating the day to day discussion and as we move through the fourth-quarter earnings reporting period.

There was no real drama yesterday in the sense that the major indices did not move between gains and losses as they have done so many times recently with things sort of sagging lower as the session moved along.

As a result, the Dow ended with a closing decline of 207 down to 33,949 led by selling in AMGN, CVX, HD and HON. The S&P did worse as is the case on these lower days with a loss of 46 to 4118 as selling in the larger technology issues, particularly GOOG and META for a change after its blistering upside run of late.

The Nasdaq did the worst of all, as opposed to the recent higher days when it does the best, and ended 203 points lower down to 11,910. The Russell 2000 Index of small stocks lost 30 points to 1942 and one could see this coming as in the huge upside move of Tuesday, it sort of got dragged slightly higher right at the end.

And naturally the VIX moved higher from that unsustainable support level and ended at 19.63 and could move lower on the next higher day which will be today.

As mentioned, this pullback came after the first public comments by Federal Reserve Chair Powell since the central bank raised interest rates last week. Markets found some solace in Powell’s signaling that Friday’s exceptionally strong jobs report would not by itself push the Fed to get more aggressive on interest rates.

But it was also pointed out that Powell’s comments were just as tough on inflation as before. He said that while he has seen improvements in inflation, the road ahead is still going to be a long slog to get it fully under control. The Fed can help drive down inflation by raising interest rates and keeping them high, but that also raises the risk of a recession and hurts investment prices in the meantime.

The Fed has been saying that it plans to hike interest rates a couple more times and then hold them at a high level at least through the end of the year. Investors moved their  forecast for how high rates will go by the summer closer to the Fed’s following Friday’s jobs report which showed much stronger job growth than expected, which could raise the pressure on inflation, at the same time that investors are still betting on the possibility of a rate cut later this year.

John Williams, the president of the Federal Reserve Bank of New York, said he still thinks the federal funds rate will reach a target of 5% to 5.5% by the end of the year. This is a “a very reasonable view” in his opinion. With the rate currently sitting in a range of 4.50% to 4.75%, that would be in line with expectations for two more 25 basis point increases before a pause.

But he also warned that interest rates may need to go higher if stock prices rally and bond yields fall too much, among other loosening financial conditions, because that could drive inflation higher.

Companies have so far been reporting relatively lackluster earnings for the fourth quarter of 2022, as rising costs eat into their profit margins.

CMG fell after it reported weaker profit and revenue for the latest quarter than Wall Street expected. JKHY, a company in the financial technology industry, sank for one of the biggest drops in the S&P after it reported weaker results than expected and trimmed financial forecasts for the full fiscal year. LUMN tumbled by 20% despite reporting stronger results than expected. Its forecasts for some financial measures in 2023 fell short of analysts’ expectations.

On the winning side was CVS, which gained after topping forecasts for revenue and profit. It also said it would purchase Oak Street Health, a primary care company, in a deal it valued at about $10.6 billion.

In the bond market, Treasury yields dipped a bit after zooming higher in recent days on expectations for a firmer Fed. The 10-year Note slipped to 3.62% from 3.68% late Tuesday. The two-year yield dipped to 4.43% from 4.47%.

This week sees the fourth-quarter earnings reporting season start to come into the homestretch with the following: yesterday –  UBER, ENPH, FTNT, CVS, FOXA higher while CMG, LUMN, ILMN, UAA,YUM were lower; today – Dow component DIS higher plus MGM, HOOD, WYNN, DUK, HLT, K, PM, RL, ABBV, PEP, SONO while AFRM, HAS, TRI are lower; tonight – LYFT, PYPL, VRSN, YELP, EXPE;  Friday – NWL.

Economic reports will have: today – weekly jobless claims rose by 13K to 196K; Friday – February mid-month U. of Michigan Consumer Sentiment Survey.

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.