Weekly market preview Feb 20 – Mar 1 ( PCE release , Macro consideration )
Broad market overview
1 day after Nvidia led Market rally on Thursday session, Feb 22; there isn’t any follow through on Friday , Feb 23, Semi’s close at -0.6% and Nasdaq closed at -0.3 % , while Transport gain 0.6%. the rest of the market is not moving much. Basically there’s no follow through after Nvidia led Rally. Evidently, Participants have taken some profit and staying on sideline. But the Onus is on Bull to prove themselves by following through to the upside. Will it breakup and rally further or Retrace back into 17100 to 18100 range ? this is some we will monitor closely in the coming sessions.
S&P 500 11 sectors
Utilities, materials and industrials are the top ranking sectors while Consumer discretionary and Energy are the bottom ranking sectors.
On 1 week relative performance basis, Staples, materials and industrials are the top ranking sectors, while Communications, real estates and Energy are the bottom ranking sectors.
Macro consideration
As Nvidia earning weeks are over and close to 90% of S&P 500 company has released their earnings, Earnings related move has been fully priced in, the next catalyst for market movements will switch back to Macro data and the Fed rate decision meeting on 20th March ( no hikes, but Dot plot and projections are the market focus ).
Market has priced in the goldilocks scenario for many months. is the goldilocks scenario overly priced in ? We have to look at the Grow and Inflation to get some idea.
Growth
In terms of grow, it’s still strong, there might be some pocket of weakness compared to previous months, but overall grow is still strong, especially Fed atlanta now cast which has done a pretty good job of forecasting the grow previously.
Inflation
In terms of inflation, this is an area where tensions likely emerge. By tension I mean data that can cause some anxiety, e.g container freight cost going up. And prices that are currently low and has been slowing down but may possibly go up in the future.
Core CPI
Shelter yet to come down significantly. I believe Shelter will eventually come down to level close to core CPI/PCe of 2% level.
The following 2 prices are the more concerning components,
Containerized freight index
For Vessel routing through Red Sea, Cape of good hope, the freight has doubled. Market impact depends on how fast freight transmit through to the final consumer prices. ( or how fast market think it will transmit through to the final consumer prices )
% of small business planning to hike prices
This could impact the CPI in the next few quarters as CPI and Small business price pressure has a high degree of co-movement.
Will there be a reacceleration of Inflation, unlikely. But will the Price be a bit stickier ? Part of the component may be stickier, this could be the tension that worry the bulls. While I think the year end target could surprise to the upside, the path between now and year end could be tricky.
RRP drawdown
This is another tension that the market bull is worrying about, as RRP drawdown to zero. Financial market will feel the full effects of fed tightening. RRP and the Fed BTFP ( bank term funding program post SVP ) are the “backdoor liquidity” cushioning the asset market against full impact of Fed rate hike and QT.
Biggest cap company movement
MSFT
Being the biggest market cap company, how MSFT resolve the current range bound phase will be crucial to the next market movement,
1)Resolve to upside breakout, market rally continue
2) breakdown below upward sloping trendline, market will fall
AAPL
Being 2nd biggest cap and company, the influence on market is significant. This stock has been laggard, and it was not dragging down the main indices because Semi, AI led rally has more than make up for Apple weakness. But when the rest of the stock is rallying on tired leg / in retracement, that’s when Apple weakness could be felt by the market.
Apple is at critical juncture, and it's direction is important in determining the benchmark index next phase,
critical juncture :
1) between 50% and 61.8% Fib retracement of Oct 27 - Dec high price swing
2) 200D MA
3) 180 support level ( make or break level)
4) lower high
NYSE market internals
The Buying seems lethargic ( on lower volume ) yet there’s no expansion of new lows.
On Feb 22nd 2024, 1.63 to 1 NYSE Advancer to Decliner ratio (1750/1069 )
On Feb 23rd 2024, 1.6 to 1 NYSE Advancer to Decliner ratio (1736/1082 )
As always, we will continue to monitor the charts, assess the bullish/bearish evidence day-by-day to make appropriate capital allocation and investment decisions.
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