Stock bulls are trying to keep prices supported. Believe it or not, the S&P500 is back above its 100-Day Moving Average and is less than 100 points from jumping back above its 200-Day. Bulls are somewhat breathing a sigh of relief after Fed Chair Jerome Powell refrained from commenting on US monetary policy at a speaking engagement yesterday. Some strategists are taking his silence on the subject as a sign that the Fed may ease up on rate hikes.
Currently, traders are giving a 25-basis point hike a nearly 77% chance versus just 23% for a 50-basis point hike at the next Fed meeting on January 31-February 1. The fact that he didn’t try to warn Wall Street against that thinking is viewed by many bulls as a sort of confirmation that there could be another step down in rate hikes.
Bears however are pointing to comments made by other officials that reiterate the Fed’s pledge to move rates into “restrictive” territory and keep them there for longer than in past tightening cycles. Most still think rates will top out around 5% but bears warn that Wall Street bulls are underestimating how long those rates might remain there, as well as the degree to which high rates will slow the economy. Bears are further warning that bulls are underestimating the damage being inflicted to the economy and corporate margins by high inflation, which they believe will remain stubbornly elevated for much of this year and possibly into 2024.
Thursday’s Consumer Price Index will be a critical inflation test with consensus looking for headline CPI to drop to +6.6% year-over-year from +7.1% previously. Insiders warn that with Wall Street overwhelmingly expecting another monthly decline, things could get very ugly, very fast if the gauge surprises with an increase instead.
There is not a lot on the calendar today with the Energy Information Administration’s Petroleum Status Report the only economic data of note and just KB Home on US earnings front.
Friday is the big day for the banks to report earnings i.e., Bank of America, BlackRock, Citigroup, JPMorgan-Chase, and Wells Fargo. Interestingly, Wells Fargo, once the No. 1 player in mortgages, announced yesterday that it is stepping back from the housing market. Remember, they were our country’s top lender as recently as 2019 when it had +$201.8 billion in home loan volume. Interesting to see them stepping back.
Top 3 Things Traders Have to Watch: Rate Hike, CPI, Earnings
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