Daily Market Notes: 3-1-2023

The month of February closed with further declines yesterday as better showings for the S&P and Nasdaq could not hold due to real weakness in the Dow and some very late day end of the month shenanigans.

The Dow had no chance as it started out lower and just kept drifting as the day moved along and ended near its worst level of the session with a closing decline of 232 down to 32,656 and the bulk of the loss came from the two most highly priced stocks in this price-weighted index, namely UNH and GS. In addition, it was another poor showing for the health-care components once again, with AMGN, JNJ and MRK all continuing their recent declines.

The S&P, after starting lower, got up to a 15 point gain by 2pm before it began to fade and by 3pm it went negative before selling off in the final hour to end 12 points down to 3970. The ending seemed a little bizarre and volatile on market makers having a field day from mutual funds who wanted to unload their positions on the close. It ended down 2.6% for February.

The Nasdaq tried to do the best with strength from META providing the upside juice, in addition to TSLA and AAPL being positive on its run to an 81 point gain at its high point at 2pm as well before its late fade into a nominal 11 point decline on the close down to 11,455.

The Russell 2000 Index of small stocks managed to hold steady with a 1 point advance to 1897 while the VIX once again could not gain even on a day when the three major indices all ended lower and it finished down at 20.70 so all of these revelations about huge buying of upside VIX calls has turned out so far to be a real loser, as it has remained in this very narrow range for the longest time.

After an excellent month to start the year in January, the S&P topped out on the day that Fed Chair Powell once again misread the market by saying that the “disinflationary process has begun” So instead of that prediction coming true, the market shifted into reverse as a stream of data showed inflation along with the overall economy are remaining more resilient than expected. This has forced investors to increase their forecasts for how high the Federal Reserve will take interest rates and how long it will keep them there.

After earlier this year hoping that the Fed could soon pause its aggressive rate hikes  and maybe even begin cutting them late this year, traders have come around to believe the Fed’s long insistence that it plans to take rates higher for longer to try to get inflation under control.

The Fed has said it wants rates to climb to a “sufficiently restrictive” level where the economy slows enough to get inflation down to its 2% goal. Many investors now see the Fed hiking the federal funds rate up to at least 5.25%, if not higher, and keeping it there through the end of the year. The Fed’s rate is currently set in a range of 4.50% to 4.75% after starting last year at virtually zero.

The heightened expectations for rates sent yields moving up in the bond market as the 10-year Note held steady at 3.92% Tuesday while the 2-year yield ticked up to 4.81% from 4.78% and is now near its highest level since 2007.

Worries about rates have caused the S&P’s gain for the year to decline by more than half as it was up as much as 8.9% in early February, the day before the January jobs report came in at a whopping 517,000 gain. It is now up by 3.4% for the year.

Reports released Tuesday showed some slight cracks in this strong economy scenario as February Consumer Confidence unexpectedly fell and the Chicago PMI also came in lower than expected as well.

All of this comes against a backdrop of falling earnings for the S&P as they are in the process of reporting their first decline in profits from year-earlier levels since 2020, when the pandemic was choking the economy.

TGT did well after it reported better profit and revenue than expected for the latest quarter, but also echoed some other retailers in giving a cautious forecast for upcoming results as U.S. households contend with still-high inflation.

On the losing end was NCLH which fell by 10%  after reporting a bigger loss for the latest quarter than expected. It also gave profit forecasts for the upcoming quarter and year that fell short of estimates.

The fourth-quarter earnings reporting season is coming to an end with the following lineup: yesterday  – OXY, NCLH, AZO lower and AAP, SEAS, TGT, WDAY, ZM higher; today – AMC, A, ANF, DLTR, KSS, NIO, TUP, RIVN, NVAX, MNST, ROST, LOW, SPCE lower while FSLR, URBN, WRBY, WEN, HP are higher; tonight – JACK, OKTA, SNOW and Dow component CRM; Thursday – BUD, BBY, BIGG, HPE, M, JWN, SIX, VSCO, VME, COST, DELL, HRL, KR, MRVL; Friday – HIBB.

Economic reports will have: yesterday –  February Consumer Confidence fell to 102.9 which was the lowest since November, December CaseShiller Home Price Index rose by 5.8% which was lower than November’s 7.6% due to higher mortgage rates, ISM February Chicago Business Barometer fell to 43.6, Richmond Fed Manufacturing Index dropped to -16 which was the lowest since 5/2020; today – ISM February Manufacturing Index slipped to 47.7, which was the third straight month of contraction, January construction spending slipped by 0.1%; Thursday – weekly jobless claims; Friday – ISM February Services Index.

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.