The stock market has been in Melt-up phase, but it seems to start having some cracks. There are many uncertainties in the economy as layoffs mount, inflation is persistent, and housing is slowing. Corporate guidance for the future is getting weaker although we have had a decent earnings season. The market direction will be dependent on the consumer and the ability to maintain a job, manage the debt with higher rates, and maintain confidence. As more certainties about the future develop, the market will react accordingly.
Today, we have Fed minutes and many earnings with Nvidia being the most awaited for today. The “Mag 7” which has fueled this market does seem to be showing some fractures. Nvidia is lower this morning. Other tech stocks, Palo Alto Networks and SolarEdge Technologies are selling off on weak guidance. The tech market has been trading on euphoria and is looking over bought. The market should rebalance to be able to continue the upward trend. Additionally, we have results from HSBC, Wingstop and Analog Devices before open. This afternoon Nvidia and Etsy will report earnings.
In addition, Investors will be watching the minutes from the Federal Reserve’s January meeting, seeking directional insight on where the central bank stands on rates. This comes on the back of hotter-than-expected inflation data last week. The current market view is that the Fed will be “higher for longer” but there is a growing perception that additional rate hikes might be needed.
The biggest question is whether the FED cuts/holds rates as the economy slows or starts a new round of hikes as inflation stays persistent.
Investors should follow a strategic approach of investing in high-quality companies. There are many great companies, and the market should continue to broaden out. The stock market tends to favor the disciplined and patient. The economy is moderating. Investors should continue to look for fundamentally sound companies as the market begins the process of rebalancing and expanding to other opportunities.
Key points:
- Recent economic data indicates growing concerns about layoffs, persistent inflation, a housing slowdown, and weaker corporate guidance.
- The stock market and economy on consumer confidence and debt management ability.
- The tech sector and “Mag 7” are showing some weakness, euphoria fading, possible overbought conditions.
- There is growing FED uncertainty. Rate hike path unclear after hotter inflation data. The market will be watching the Fed Meeting for signs of additional rate hikes vs the “higher for longer” stance.
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