March 27th, 2023

Despite Banking Crisis, Market Remains Range-Bound

Yet another week of a crazy market went by with bank failures and liquidity pumped back into the markets. Bond rates were all over the place and didn’t settle down.

Despite all the negative news promoting a 2008-like recession that will imminently bring our country to its knees, the market has been resilient and been range-bound this year.

I’ve had several people write in and ask about the market that is falling apart, but I see a market that is still positive in 2023 and certainly still higher since the October 2022 lows. Yes, it’s been a let down since February, but all hope is not lost.

While the intraday volatility can make it feel like things are falling apart, the patient retail investor should still be ok, despite the banking crisis. The market is trading at the same level as the end of February. The Volatility Index (VIX) is still low.

Sometimes it helps to zoom out and break things down by sectors. Here’s the past 3-month sector relative performance.

Yes, more sectors are in the red than the green, but this shows you where the gains are coming from.

The same sectors appear near the top of and bottom of the 1-month performance chart too.

Even though it may have felt like a rocky week, here’s the 1-week performance chart.

Look at last week. More sectors finished higher and even the Financial sector made a rebound.

While Financial may eventually go from one of the worst performers to one of the best, you can see that Communication Services and Technology are ruling all three timeframes.

With the banking crisis still playing out and with most regional banks involved in real estate, I expect both of those sectors to continue to underperform until things clear up more. That doesn’t mean the occasional stock like Schwab (SCHW) won’t rebound in the near future. I’m still looking at Communication Services and Tecnology to lead the market higher this week.

Now, with some of the manufacturing reports last week giving us better than expected results, it’s a good time to check out what reports are coming out this week and if the good news can continue.

We don’t have that many reports this week, but various members of the Fed are expected to speak throughout the week. I’ve said it before – I think the markets would be better off if they’d stop talking. Look at the damage caused by Yellen last week when she said the government won’t insure all deposits over 250k. That was enough to rattle the markets, for an hour or two and it took the remaining days in the week to recover.

Outside of the various speeches, here is a list of the reports that have the greatest chance of moving the markets this week.

Tuesday – 10:00 am EST – Consumer Confidence – After two months of unexpected declines, the market is expecting the report to come in at similar levels to March. The last report had a reading of 102.9, and this month we’re expecting to see a reading of 101.

Thursday – 8:30 am EST – GDP – The third estimate of fourth-quarter GDP is expected to hold at 2.7%.

Thursday – 8:30 am EST – Jobless Claims – New unemployment claims keep coming in under the consensus, showing week after week that despite the news of layoffs, this job market remains tight. This week we’re expecting an uptick from 191k claims from last week to 195k this week. That would bring the 4-week moving average to 196.25k.

Friday – 8:30 am EST – Personal Income and Outlays – Core Personal Consumption Expenditures is expected to improve month-over-month, but stay the same year-over-year. Core PCE Y/Y will need to drop to around 4% before the Fed may think about dropping interest rates.

Happy trading this week! Let’s go!

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Jeff Wood

Editor, Filthy Rich Dirt Poor
Coach, Options Testing Lab

Any trade or trade idea discussed is for educational purposes only.  They will not be tracked as an official trade recommendation.