Fed Yanks on the Reins (February 10 Market Recap)

February 11, 2023

Fed Yanks on the Reins (February 10 Market Recap)

Indices

Dow 33,869, -57 or –0.17%.
Nasdaq 11,718, -288 or –2.40%.
S&P 4,090, -46 or -1.11%.
USD10Y 3.532%, +21.2bp or +6.0%.
WTI Crude $79.76/bbl, +$6.53 or +8.92%.

Fed Yanks on the Reins

All three indices traded down slightly this week with the outperforming (YTD) Nasdaq taking the brunt of the selling. Fed officials pulled tightly on the reins mid-week trying to slow enthusiasm for risk assets after Fed Chair Powell repeated that disinflation was happening during a speech on Tuesday. Though he repeated that more rate hikes would be necessary, the market rallied after his speech. As a result, multiple Fed officials gave hawkish comments during their previously scheduled speeches the following day on Wednesday and achieved their desired result of cooling the markets.

Earning continued and there were a few surprises. Chipotle Mexican Grill (CMG) which since the beginning of the pandemic, has seemingly had the unlimited ability to pass on their increasing input costs to their customers finally missed both their quarterly earnings and revenue estimates. Disney (DIS) beat their numbers, announced 7,000 job cuts and a reorganization of the company into three units; Parks, ESPN, and Entertainment (streaming and media). Considering the consumer spending shift from goods to services, it was surprising that Expedia (EXPE), a travel booking company, missed their numbers. However, the biggest miss of the week belongs to ride share company, Lyft (LYFT). Lyft missed their revenue numbers and was taken to the woodshed to the tune of –36%.

With nearly 70% of the S&P 500 reporting, around 70% of those companies beat analyst expectations for the quarter. That’s a smaller share of companies surpassing expectations than the three-year historical average of 79%, according to The Earnings Scout.

Next Week

Earnings season continues to wind down, but the focus will be squarely on this week’s latest inflation data: Tuesday’s Consumer Price Index and Thursday’s Producer Price Index. Manufacturing data will also be forthcoming from New York and Philadelphia.

Economic Calendar

Monday – January NY Fed 1 and 5-year Inflation Expectations.
Tuesday – January Consumer Price Index (CPI). Earnings: Coca-Cola (KO) and Airbnb (ABNB).
Wednesday – January Retail Sales, February Empire State Manufacturing Index. Earnings: Shopify (SHOP)
Thursday – Initial Jobless Claims, January Producer Price Index (PPI), February Philadelphia Fed Manufacturing Index. Earnings: Applied Materials (AMAT), DoorDash (DASH).
Friday – January Leading Economic Indicators Index.

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February 10 Daily Trading Recap…

Monday – Dow -35 to 33,891, Nasdaq -120 to 11,887, S&P -25 to 4,111, USD10Y +10.2bp to 3.634%.

Nine of the eleven S&P sectors traded down today, led lower by Communication Services, Technology, and Materials.
As with last Monday, today’s story was profit taking as there was no news, and the weakness was especially concentrated in the outperforming (YTD) Nasdaq.

Tuesday – Dow +265 to 34,156, Nasdaq +226 to 12,113, S&P +53 to 4,164, USD10Y +4.0bp to 3.674%.

Eight of eleven S&P sectors traded higher today, led by Energy, Communication Services, and Technology.
Fed Chair Jerome Powell spoke today at the Economic Club of Washington D.C. and reiterated that disinflation was occurring. Although he repeated that more rate hikes would be needed, the markets latched on to the fact that he did not walk back his disinflation comments from last Wednesday.
Earnings: Chipotle Mexican Grill (CMG) traded down 5% after missing earnings and revenues.

Wednesday – Dow -207 to 33,949, Nasdaq –203 to 11,910, S&P -46 to 4,117, USD10Y –2.1bp to 3.653%.

All eleven S&P sectors traded down today, led lower by Consumer Communication Services, Utilities, and Technology
Multiple Fed Officials (Waller and Williams) made hawkish comments today regarding interest rates going higher and staying there longer. The markets got the message and sold off.
Earnings: Disney (DIS) beat earnings and revenue expectations and announced 7,000 job cuts.

Thursday – Dow -249 to 33,699, Nasdaq -120 to 11,789 S&P -36 to 4,081, USD10Y +3.0bp to 3.683%

All eleven S&P sectors traded down today, led lower by Communication Services, Materials, and Utilities.
Jobless claims continued to fall to 196,000 claims vs 190,000 expected and last week’s unrevised print of 183,000.
Earnings: PayPal (PYPL) beat their numbers but announced the retirement of CEO Daniel Schulman. Pepsi (PEP) beat numbers and traded up nearly 2%.

Friday – Dow +169 to 33,926, Nasdaq -71 to 11,718, S&P +9 to 4,090, USD10Y +6.1bp to 3.744%.

All eleven S&P sectors traded down today, led lower by Consumer Discretionary, Real Communication Services, and Utilities.
February University of Michigan Consumer Sentiment improved to a 13-month high of 66.4 vs 65.1 and last month’s 64.9 print.
February University of Michigan 1 and 5-year Inflation Expectations were 4.2% and 2.9% respectively. The former number was higher than January’s 3.9% print and the latter number was unchanged from last month.
Earnings: Expedia (EXPE) missed their earnings number and traded down 8.55%. Lyft (LYFT) missed their revenue expectations and fell 36%.

Disclaimer: This is not a recommendation to buy or sell any of the securities listed above. I personally, or a family member whose account I control, have positions in the following securities/assets…Bitcoin, Cardano, Chainlink, Ethereum, ETHE, GBTC, and TSLA.