Last Friday, the market took it on the chin in a manner that was not represented in the close of major indices. Sure, the Dow was down 1.3% and it shed 7% this year already, even the tech-laden NASDAQ, which suffered a 3% drubbing has been slammed almost 13% this year, but it doesn’t accurately reflect the carnage.
Those hot stocks (known as the FANG trade) have been bitten, reminding investors that the momentum pendulum swings both ways.
Of course, this all got started with the jobs report, which I thought was the best possible outcome for a nervous market. Overall, we saw a tepid job growth that will be revised lower, along with stronger wages to mitigate recession arguments. However, the twelve-cent increase in wages has many economists saying that the Fed will hike rates in March.
I say that it’s nuts. Sure, inflation 101 says inflation happens from too much money chasing too few goods- is there anyone out there with too much money.
Still, there are new voting members on the Fed; two have spoken out this week, burnishing their reputations as hawks and straight shooters. First, Esther George says Wall Street needs to “man-up” and to take these rate hikes, followed by Loretta Mester, who says that Fed policy doesn’t mirror the market and essentially says that the tail will not wag the dog.
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We are still off the double bottom formation and can still rally. Your key numbers next week are 16,500 on the upside and 15,750 on the downside. Look for more gyrations, but stick with the weak dollar investment strategy.
There are more earnings reports and economic data releases scheduled for the week, but it’s anti-climactic. From here on out; each time a Federal Open Market Committee (FOMC) voting member opens their mouth, it will dictate the direction of the stock market. While those academics try to sell the idea that this is an economy so hot that it needs cooling off, the rest of us will be looking for signs of economic life.
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