MarketBeat Minute

Equity markets were mixed and flat early on Thursday as market momentum waned. However, the day turned into a rout for the bulls following hawkish comments from Fed chief Jerome Powell. He says the Fed is not confident that it has done enough to tame inflation, and more rate hikes may be needed. This is contrary to a recently firmed opinion that the Fed was near the cycle's peak and put a cap on equities.

The S&P 500 is showing resistance near recent highs and may not be able to move much higher without another catalyst. The next big market-moving events will come next week with reports from major retailers and the CPI report. The CPI may show another cooling in inflation and provide a lift for equities; the risk is that a CPI-driven rally may quickly reverse when Target and Walmart report later in the week. Walmart has been a resilient player, gaining market share and controlling shrinkage, while Target loses share and struggles with theft.

Equity markets were mixed on Wednesday, with the S&P 500 struggling to extend its longest winning streak in 2 years. The move comes after a sharp melt-up driven by the Q3 earnings season, cooling inflation, and evidence the Fed is nearing the peak of the rate hike cycle, so a slowdown in upward momentum is expected.

The caveat for investors is that the new normal is still in place and will continue to drag on corporate earnings over the coming quarters. The S&P 500 may continue to rally from here, but there is risk. The market is still below critical resistance at the 4,400 level and may have difficulty moving above it without another significant catalyst.

All eyes will be on central bankers on Thursday. Central bankers from around the world will participate in a panel discussion. The topic is global financial stability and will include inflation and interest rates. The risk in this event is talk of persistent inflation and lingering interest rates, which are hurting the global economy. Signals that inflation is tamed or that rates will soon fall could lift the market.

Equity markets advanced another day on Tuesday, taking the S&P 500 up by 0.3% to set a 2-month closing high. The rally is the 2nd longest for the year and may continue higher, given solid results from retailers next week. The risk is that retailers' profits and guidance will fall short of the consensus and cap gains for the index, and there are reasons to fear. Reports are due from Walmart, Target, and Home Depot; 2 of which have struggled this year.

This week's risk is Fed-related. There are a dozen speaking engagements on the calendar, including an IMF panel discussion with Jerome Powell. The discussion will surely hit on inflation and monetary policy so that it will be closely watched for clues. The latest indications are that the peak of the FOMC rate hiking cycle is near; words contrary to that outlook will harm the market. If the S&P 500 is unable to get above 4,350 by the end of the Q3 reporting period, the odds are high that another deep stock market correction will follow.

Equity markets were steady and stable on Monday following the rebound last week. The market is digesting the 6% move posted in the previous week and may move sideways for the next 2 to 3 weeks. This week will bring another onslaught of earnings reports, but nothing that should be significantly market-moving. The next big hurdle will come next week when the retailers start to report, and the latest read on the CPI is released. Another cool figure will reinforce the idea that the FOMC is at or near the peak of the rate cycle and send the S&P 500 back to its recent highs.

The risk for the market now isn't that rates will keep rising but that they may stay at this level indefinitely. Labor markets remain strong, and oil demand and high prices will continue to underpin the cost of goods. Without a demand reduction, the cost of goods will remain high and keep the Fed's foot on the brakes. In this scenario, S&P 500 earnings power will continue to erode and cap upside potential in the index.

Equity markets rallied in the prior week on hopes the Fed rate hiking cycle is near the end. Remarks from Fed chief Jerome Powell alluded to the event but left the door open to additional hikes should they be required. However, the takeaway is that rates will remain high indefinitely, and the first cut may not come until late in 2024. The S&P 500 gained about 6% for the week but remains below the 2023 highs with critical resistance close.

This week will be a trying time for equity traders. There is very little economic data, lots of fed speak, and another week of earnings. Earnings reports from Disney, Kellanova, and Occidental Petroleum will take the spotlight. The questions are how margins hold up and the outlook for capital returns. Disney, specifically, could shed light on when it will reinstate its dividend, which would be a significant catalyst for the stock.

Equity markets continued to rebound on Thursday following the Fed's November policy statement. Although the Fed indicated another rate hike could be necessary to tame inflation, the market cheered because the peak was near. The S&P 500 gained about 2% at the session's high and could continue to advance over the next few weeks. The risk is that inflation is not tamed, and rates will remain high indefinitely. In this scenario, the S&P 500 will be capped by a dwindling outlook for corporate earnings growth.

The consensus estimates for earnings growth in 2024 are falling. The Q1 and Q2 figures are down more than 50% from recent highs and may continue to fall as the year progresses. Consumers are already pinched, and with the holiday season approaching, there is concern that spending will be less than analysts expect. The takeaway for consumers is that discounts and deals are expected to approach the pre-pandemic levels, which were highly favorable to shoppers.

Equity markets rebounded on Wednesday, bolstered by the FOMC policy decision. The FOMC held rates steady as expected and made little to no change in the statement. The most glaring change is the outlook on economic growth, which was upgraded. The committee says the economy expanded rapidly, ultimately bad news for stocks. With economic activity still robust and potentially accelerating, the odds that inflation will recede to 2% soon are dwindling. In this scenario, the FOMC may not hike rates again this cycle, but the first interest rate cut is a long way off.

The S&P 500 gained over 1% on Wednesday, extending the rebound to 3 days. The caveat is that this move is a relief rally within a downtrend and below critical resistance. If the market can not extend the rally on Thursday, there is a chance the sell-off will resume. In this scenario, it doesn't matter what the Fed does now, only the impact on earnings and the outlook for S&P 500 earnings growth.

Equity markets continued to rebound on Tuesday, but investors should not read too much into the move. The S&P 500 gained less than 1% for the day and remains below critical resistance. If anything, Tuesday's gain was a relief rally within a bear market and 1 that comes with outsized risk. Today is the FOMC policy decision, and the odds are high that the committee will issue a very hawkish statement.

The pace of inflation remains high despite recent slowing and will keep the Fed's foot on the economic brakes indefinitely. In the absence of a recession, the odds favor high inflation for a prolonged period due to resilient labor markets, consumer spending and oil demand.

Regardless, the consensus figures for Q4 and 2024 S&P 500 earnings growth are suffering. The consensus figure for Q4 is down 50% from its peak and could fall further. Because earnings growth is a market-leading data point, it is likely the S&P 500 will continue to see downward pressure.

Equity markets began the week on an upswing, with the S&P 500 rising more than 1.5% at the session's high. The move was driven by some better-than-expected earnings reports and the hopes the FOMC will be lenient on Wednesday. The FOMC is expected to release its next policy move on Wednesday, and for that to be no change to base rates. However, the market should be ready for a hawkish statement. Inflation has cooled from its highs but remains hotter than target and will keep the Fed hawkish for the next year.

This week will bring a host of earnings reports with more than 150 S&P 500 companies slated to report. By the end of the week, more than 75% of the index will have reported bringing the season to its penultimate segment: retail. Until then, the season is unfolding largely as expected, with earnings growth in the low single digits and the consensus estimate for Q4 falling sharply.

Equity markets continued to sell off last week despite some better-than-expected earnings reports. The move was driven by hot economic data that points to persistent GDP growth, consumer demand, and inflation. With the FOMC meeting slated for the week, the risk is that hawkish Fed rhetoric will intensify and may telegraph the next policy move as an increase in rates. In this scenario, the S&P 500 could shed another 10% or more before hitting its bottom.

The S&P 500 shed more than 2.5% for the week, bringing the index below the critical 4,150 level. If the market doesn't snap back this week, the odds are high that the selling will continue. The question now is what could turn this market around, and it looks like it will take a great deal. The market may not be able to regain its footing until later in 2024 once the economic headwinds subside and inflation is finally tamed, or not.