The market seems to be stuck in a “wait and see” pattern again. The market rallied since the beginning of the year, gaining ground with every positive news about inflation. Investors welcomed the earnings season after about 70% of the companies beat earnings estimates.

Investors shrugged off the lower guidance and instead kept buying stocks in record numbers. Retail investors poured an average of $1.51 billion per day into U.S. equities. They’ve just been very selective about which stocks they are buying.

However, the narrative started to shift and the latest round of economic data is showing that the battle with inflation is far from over. Now the market rally stalled and investors seem to be on the sidelines once again.

Investors are stuck, waiting to get a glimpse of how the Fed will react since their last meeting. I would argue that the Fed hasn’t once wavered on its stance of “higher rates for longer”, but investors seem to be paralyzed with fear for the time being.

We’re stuck in a congestion pattern on the Dow Jones Industrial Average (DIA) chart and despite some larger intraday moves, the market has remained mostly unchanged since January 25th.

A break seems to be coming, but the question is whether we start the next leg higher, or if we break the current uptrend and head lower. If we do break lower from here, I’d look for a possible retreat to the 200-day moving average. There will be plenty of economic reports for investors to digest this week.
Let’s dive into each of them and see what has the potential to move the markets this week.

In addition to the reports outlined below, we have a few Fed speakers interspersed this week. John Williams speaks after the market closes on Wednesday, while Raphael Bostic is speaking just before 11 am EST on Thursday. Loretta Mester is expected to speak on Friday at 10:15 am EST.

Here are the market-moving reports this week.

Tuesday – PMI Composite Flash – 9:45 am EST – PMI Manufacturing has sunk into contraction for three months and the services index has been in contraction for seven months. Both numbers are expected to be marginally better in February.

Tuesday – Existing Home Sales – 10:00 am EST – Home sales month over month are expected to drop -1.5% and -34% year-over-year.

Wednesday – FOMC Minutes – 2:00 pm EST – The meeting minutes are issued three weeks after the FOMC meeting. The information was already announced weeks ago, but this will give investors the opportunity to review every detail of what the Fed discussed at the last meeting.

Thursday – GDP – 8:30 am EST – The second estimate of fourth-quarter GDP is expected to stay at 2.9%, the same reading as last time. We could see a revision of the Personal Consumption Expenditures Annual Rate drop from 2.1% to 2.0% in the second estimate.

Thursday – Jobless Claims – 8:30 am EST – Claims are expected to tick higher, up to 200k this week from last week’s 194k. Even with an increase over last week, the job market remains strong.

Friday – Personal Income and Outlays – 8:30 am EST – We don’t know if investors will shrug off more bad news, but the report is expecting to show the PCE Price Index increase month-over-month.

Friday – New Home Sales – 10:00 am EST – Some say to watch the home builders for signs of a new bull market. New home sales are supposed to show a slight uptick from 616k last report to 617k this time around.

Friday – Consumer Sentiment – 10:00 am EST – The report is expected to show consumer sentiment increasing from January by 1.5 points, and finishing February at a reading of 66.4 out of 100.

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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.