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March 3, 2022
News to pay attention to will hit the wires on Friday morning when the February jobs report is released. Here’s what you need to know:
This month’s release will determine whether the Fed raises interest rates .25% or .50% at the March meeting. Next week’s Consumer Price Index, or CPI, report will give further clarity to Fed action.
What to look for and how to trade the markets:
We’re watching two components of the jobs report; job additions total and wage growth (or wage inflation).
If we see total job additions at or under 500k and wage inflation at or under 5.3%, this furthers our belief that the Fed will stick to a .25% increase.
We see that as providing the backdrop to a rally, primarily in the NASDAQ in the latter half of March.
Job additions greater than 500k, OR, wage inflation higher than 5.3% will fuel fears of the .50% increase, which will add to market volatility and could lead to another round of selling pressure across the major indexes.
Yield Curve Update
The 10-2s spread, or Yield Curve, violated the 40 basis point line it had held for several days, reaching a new two-year low of 36 basis points. This gets us uncomfortably close to inversion.
The 10-year yield has been rising throughout the last several months, but the 2-year yield has been rising faster, creating a short-term negative economic outlook.
The yield curve is only important in your trading (unless you trade treasuries) as a guide to potential recessionary impact. We’re not there yet, and we’re not calling it. We are, however, watchful.
Short-Term Stock Market Outlook: Hold
Given the crisis in Ukraine, the impending Fed meeting and likelihood of three interest rate increases by June, we see a sideways market developing in the second quarter (and we hope we’re wrong!).
S&P 500 High (1 Year): 4,793
S&P 500 Low (1 Year): 3,768
The downward slope to the S&P 500 chart is of concern – however, the market has found a strong floor around 4,350 on the S&P 500.
Q1 Earnings season is several weeks away, but a stronger than expected start to 2022 earnings would give more support to stocks moving higher in the short-term. As it is, we have too many negatives weighing the markets down.
The Fed raising a quarter point at the March meeting would be a dovish surprise that could lift the S&P back to 4,600.
More news tomorrow and next week as we get more economic clarity.
Your Traders Reserve Team
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