Weekly Market Update

Stocks regained their footing and ended a three-week streak of losses as the recent rise in interest rates reversed heading into the weekend.  However, the bear narrative around hotter economic data (jobs, inflation, retail sales etc.) and the implications on Federal Reserve interest rate hikes has remained intact and we largely view this week’s bounce as more of a function of stocks being oversold.   Nonetheless, we have been impressed with the stock market’s ability to remain in the uptrend it has established since October’s lows and the S&P 500 is only about 3% below its highs for 2023.

Next week features two major macroeconomic events and we suspect the S&P 500 has largely traded sideways over the last two weeks as investors brace for these events to decide the direction of the next leg for markets.  On Tuesday and Wednesday, Mr. Powell will be speaking in front of the Senate and House Banking Committees, and we expect trading to prove quite volatile as investors hang on every word of his testimony.  However, Friday’s jobs report will be particularly influential, as investors try to discern whether the blowout January employment data was an anomaly.  Government labor market data such as job openings and labor turnover (JOLTS) has remained very strong, but data from other sources, particularly online recruiting firms has hinted at deterioration (see WSJ chart below).  For example, ZipRecruiter reported very poor earnings results last week as management highlighted depressed online job postings.  The Fed has emphasized that it is data dependent, so if we get a February jobs number on Friday above consensus estimates of 215K, we suspect interest rates will resume their move higher and stocks will probably struggle.  However, if the jobs report misses estimates by as much as the private-sector data implies, we could see quite a rally heading into next weekend as a weaker labor market is perversely something the Fed is rooting for as it looks to rein in inflation.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder

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