Stock indexes remain positive for the year with the Nasdaq up +12.6%, the S&P 500 up +6.2%, and the Dow up +2.1%. Where stocks go from here still very much depends on the Federal Reserve’s upcoming moves.

Importance of Fed’s policy 

Investors are again feeling extremely uncertain about the central bank’s end point for it interest rate hiking campaign, which in turns makes it tough to gauge what kind of room stocks have to push higher. The central bank has hiked its benchmark interest rate eight times since March 2022.

Many bears are thinking the current stock market rebound and rally is well overdone. Several Wall Street banks and insiders are saying they have not seen any type of immediate slowdown in the economy but inflation is remaining well above trend, which is a scenario that could force the Fed to push rates even higher and keep them elevated longer than the market is currently anticipating.

Goldman and a few other investment banks are now talking about the Fed perhaps raising rates three more times in 2023 at a rate of at least a quarter-point each time.

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Wall Street is mostly expecting the Fed at its next two meetings in March and May to lift rates by 25 basis-points at each meeting, which would bring its target rate to 5.00-5.25%. After that it starts to get a bit more uncertain.

Some traders are thinking the Fed will hike rates again in June, with the odds of another 25 basis-point hike now at 54% versus just under 4% at the beginning of February. Keep in mind, recent data has been unexpectedly strong which is prompting some concerns that the Fed could return to lifting rates by 50 basis-points. There is another month of data between now and then which bulls are of course are hoping will indicate that the inflation is dying off.

Key reports to watch include the PCE Prices Index this Friday (2/24), the Job Openings and Labor Turnover report on 3/8, the February Employment Report on 3/10, and the Consumer Price Index on 3/14.

Data to watch 

Economic data today includes Existing Home Sales and the PMI Composite Flash reading for February. Housing trends are being watched pretty closely now as soaring “shelter” costs have become a key factor behind stubbornly elevated inflation. Existing Home Sales today are expected to increase for January, breaking the recent down trend after falling for 11 consecutive months.

Year-over-year, Existing Home Sales were down -34% in December but outside of some frothy regional markets, home prices have continued to rise. Single-family median home prices increased +4% in Q4 from a year ago to $378,700. Prices have declined in just 20 of the 186 individual cities tracked by the National Association of Realtors.

At the same time, several cities are still registering double-digit gains, including Sarasota, Florida, (+19.5%); Naples, Florida, (+17.2%); and Greensboro, North Carolina, (+17.0%), just to name a few.

Turning to earnings, about 80% of S&P 500 companies have now delivered results, with earnings on track to contract -2.2% for Q4, the first quarterly decline since 2020’s third quarter.

Insiders expect earnings declines for the first half of 2023, but earnings growth for the second half of 2023. For Q1 2023 and Q2 2023, analysts are projecting earnings declines of -5.4% and -3.4%, respectively.

Home Depot, Ingersoll Rand, Medtronic, Molson Coors, Palo Alto Networks, Public Storage, Coinbase, and Walmart announce earnings today. Nvidia, eBay, Teladoc Health, Etsy, and TJX Companies report tomorrow.

In addition 

Geopolitics headlines over the weekend indicate that China may be ready to provide “lethal” aid to Russia, meaning supply them with weapons and ammunition for the war in Ukraine. Such a move could have huge implications for the already shaky US-China relationship and China’s relationship with other Western countries allied with the US.

China is now insisting that they are trying to help broker a peace deal between Russia and Ukraine which some insiders say includes a cease fire as well as a plan to halt military shipments to Ukraine from the West. Some believe Russia supports a similar plan and think the country could offer a draft peace proposal to the United Nation’s this week.

Most Western military experts say any plan that would cut off support to Ukraine would not be acceptable as Russia can’t be trusted to keep its end of any bargain. What’s more, Russia is likely to insist on keeping land it now claims in Eastern Ukraine’s Donbas region, something Ukraine has already said it will not concede.

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