March 6, 2023
US equities are mostly higher into a busy week of macro catalysts. Growth sectors outperform with Tech, Communication Services and Consumer Discretionary leading, while traditional value groups like Materials and Energy retreat. Mega-cap Tech outperforms for a third straight session as investors show a preference for long duration stocks. Treasury yields are mixed with curve flattening after China issued a conservative growth target. The dollar is weaker vs. euro and little changed vs. other major currencies. Gold is a touch lower, while crude is off lows and now higher on the day.
Market internals over the last three sessions suggest the peak-inflation narrative has returned ahead of major upcoming catalysts: Friday’s Jobs Report and next Tuesday’s CPI print. The relative resiliency of equity markets despite rising rates in February was also linked to the peak-inflation narrative and eventual Fed rate pause. Rising rates in February followed stronger January payroll data that may have overstated underlying conditions based on large seasonal adjustments. The upcoming Jobs and CPI reports reduce the likelihood of Powell issuing surprising remarks at tomorrow’s Senate testimony. An unsurprising Powell speech followed by an inline or below-consensus non-farm payroll number on Friday would result in lower bond yields, weaker dollar, lower volatility and continuation of the recent equity rally. Consensus is looking for non-farm payrolls of +215,000 and something north of +350,000 would generate higher yields and partially unwind the recent rally. A February headline CPI print that exceeds January’s +6.5% YoY rate would be a painful reminder of the recent divergence between bond yields and equity multiples.