1. Moving the markets

The markets took a hit today, as January’s bullish momentum ran into a glass ceiling, namely the S&P’s 200-day M/A, which had derailed every rally in 2022, as this chart shows:

Only time will tell, if this is the beginning of another leg down, after the S&P has now “lost” its 200-day M/A again.  

Contributing to today’s Dump-A-Thon were weak economic data points, including huge misses in Producer Price Index (PPI), retail sales and industrial production confirming once again that the economy continues to slide into recession territory. With Microsoft planning on laying off some 10k employees, the Dow suffered the most from today’s sell off.

Sure, after 2 weeks of bullishness, some profit taking has set in, but more so the realization that a recessionary environment is not conducive to higher earnings, because it ultimately decides the value of stock prices.

The theme of a soft landing was put on the back burner, as odds of an eventual hard landing have increased due to the above-mentioned weak data points. Even the Fed’s terminal rate expectation took a hit, as traders are convinced that the Fed will pause in May and then begin a massive rate-cutting pivot, as ZeroHedge described it.   

That wishful thinking is totally engrained in the Wall Street community, so much so that despite multiple Fed mouthpieces today agreeing that “inflation is down but not enough to stop yet and rates will go higher and stay higher for longer,” market participants are stubbornly sticking to their opposite view.

And, as you might have expected on a sell off like today, the short squeezers had no ammo left for another bullish assist.

Bond yields plummeted with the 10-year dropping to a level last seen in September. After riding the intra-day roller coaster, the US Dollar ended just about unchanged. Gold followed a similar pattern and closed a tad lower but remained above its $1,900 level.

Another battle will be starting tomorrow, as the debt ceiling limit makes its presence known. This may turn into an endless and possibly market moving tug-of-war, until final decisions will have to be made by around June 2023, before the national credit card expires.

1. Moving the markets

Bank earnings took front and center, as Morgan Stanley posted better-than-expected numbers, thereby pushing up its stock price +6%. However, banking powerhouse Goldman Sachs reported its worst earnings miss in a decade, with its stock price being pummeled at the tune of -6%. JPM’s and Citigroup’s results were mixed.

As a result, the effect on the major indexes diverged, with the Dow losing some 400 points, thanks to Goldman Sachs, the S&P 500 dropping a tiny -0.2%, while the Nasdaq squeezed out a green close, albeit a tiny one.

On the economic front, we learned that the Manufacturing Survey, which shows the NY Fed’s general business conditions, simply collapsed, with the index dropping nearly 22 points to -32.9 this month, which was twice as bad as the weakest analyst estimate, as ZeroHedge pointed out.  

There was no bright spot in the report, as New Orders dropped, Shipments plunged, and Factory Employment fell to its weakest level in more than two years. Ouch! But, not to worry, the theme of a “soft landing” is alive and well.  

Bond yields were mixed today, the short squeeze continued, the dollar drifted lower, and Gold slipped but remained above its $1,900 level.

Hope continues in the trading community that the Fed will pause or cut rates soon, which is not likely, as lessons learned point to 1980. It was the moment in time when then Fed chairman Volcker cut rates too soon, after the CPI slipped, only to see inflation roar back forcing him to reverse course and go back into hiking mode. Bloomberg demonstrates that phenomenon in this chart.

This is something that the Wall Street crowd has not begun to grasp yet, but once they do, the bears will have a good chance to dominate market direction again.