Markets returned to the typical pattern of moving on every breath of the Fed last week. The fourth quarter continues to be subpar for corporate earnings.
With 69% of S&P 500 companies having reported, 69% have beat earnings expectations (below the 5-year average of 77%) and 63% have beat revenue expectations (below the 5-year average of 69%). The market listened and responded to the Fed last week and nearly every Fed speaker throughout the week was hawkish. While most speakers agreed that the Fed would have to be “more deliberate” when it comes to future rate hikes, they also reinforced the idea that “higher for longer” was in the cards. The futures on Fed Funds remains high (90%) for another 25 basis point rate hike in March.
This week we get the January inflation numbers and both CPI and PPI are expected to drop, which would make the 7th consecutive month of declines.
It can be argued that the Fed is no longer trying to control inflation, but rather, consumer demand. It might be working, too. Consumer Credit dropped in December, which was far below expectations—something we’ll have to watch to determine if it was just seasonal. However, the preliminary reading of the University of Michigan's Consumer Sentiment Index for February came in at the highest level since January of last year (when the Bear Market began). The Mortgage Market Index is showing signs of a bottom and mortgage applications have picked up over the several weeks. Additional Fed speakers this week will make things interesting.
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