The US equity markets will be closed on Monday, February 20th in observance of President’s Day.
Last week we wrote:
Two weeks of strong gains caused investors to do a bit of profit – taking which created a loss on Wall Street this past week…………. On Tuesday the Department of Labor will release the Consumer Price Index (CPI) for January. The CPI, being the widely watched report that it is can cause seismic shifts in the markets………..
This week’s analysis:
The CPI declined fractionally showing a slowing down of the inflation rate. The rate of inflation for December came in at 6.5 % however the rate for January came in slightly lower – fractionally as we’ve said – at 6.4 %. January’s number is the lowest since October 2021. Unfortunately, Wall Street was expecting a rate of 6.2 %. The good news here is that the inflation rate has slowed for the seventh straight month. The not-so-good news however is that the current rate is still much above where the Federal Reserve wants inflation to be: 2 %. Consequently, the champagne needs to remain on ice for a while as interest rates will continue to increase in the coming months. Just a few weeks ago the Street was anticipating a top ‘cap’ - rate of 5 % on interest rates but at present this rate is looking more and more likely to land somewhere around 5.25 % and 5. 50 %. Currently the Fed has positioned the Federal Fund rate at 4.5 % - 4. 75 %.
Although we are going with our strategies that we use in our analysis, we still believe that inflation will be the albatross hovering over the market for most, if not all, of 2023. Despite the disappointing CPI news (that caused the market to lose ground this week) investors bought back into tech stocks, causing the NDX to rise.
The PPI – the Producer Price Index, saw an increase, a pretty sharp one actually, of 0.7 % in January which is the fastest increase since last June. Currently the PPI number is at 5.4 %. This number is but another confirmation that inflation – in this case higher prices for goods and service – is still pervasive in the US economy. The PPI may also be warning of a higher CPI in the coming months.
The S&P 500 lost a small fraction from the previous week. It currently stands at 4,079, falling 11 points on Friday. The Nasdaq 100 (NDX) saw a slight increase of +0.43 % while the Small Cap market stays on fire, up 1.48 % last week. The ‘Golden Cross’ we’ve written about these past few weeks has been achieved in the S&P 500 (which continues to stay above it’s 50-day and 200-day moving averages) as well as the Small Cap market. These are very bullish indicators. Additionally, we see that 66.65 % of stocks are trading above their 200-day average. This number is basically unchanged from last week.
New housing starts fell by 4.5 % in January. The current 30-year national mortgage rate stands at 6.79
If you’ve ever sailed, especially in the early morning, fog banks can appear quickly. When they do you must rely on navigational equipment such as a compass and be (very) familiar with the charts you’re using for the area. This sounds a bit like what we’re experiencing in this current market. We are relying on the indicators that are being shown, the analysis that we’re performing and the strategies we utilize based on these factors. As we’ve stated on previous posts – we are sailing in uncharted waters, therefore we will continue to use those approaches and procedures that we base our opinions and advice upon and not emotions.
We fully expected, based on our numbers, to see a Panic Bottom, where the S&P 500 would sink to 3,300 +/- that would create a tremendous buying opportunity as well as shake out the dust of the market. It is appearing that this is not in the cards, so to speak. Therefore, we are remaining in a bullish sentiment. Should the S&P 500 close above 4,300 we will project an end to the Bear Market.
Our current positions are:
Small Cap Funds
S&P 500 – Large Cap Funds
Nasdaq 100 Index Funds
International Growth Funds
Diversification – meaning to not have everything in one sector, is the best course of action now.
We will issue mid-week alerts if needed.
Mid-Week Market Alert
Thursday February 23rd, 2023
We are issuing a SELL order for the following:
Small Cap Funds
S&P 500 Funds
Transfer money into CASH (Money Market) before the end of trading on February 23, 2023
Mid – Week Market Alert
Transfer Nasdaq 100 Index Funds to Cash (Money Market) before the close of business
on February 24th, 2023