February 15, 2023
The recent resilience of the S&P 500 (SPX) amid the bearish repricing of Fed rate expectations comes from an emerging ‘no landing’ narrative. Ongoing strength in labor markets and a healthy US consumer are often cited supports for the no landing narrative. The ‘hard-landing’ narrative cites contracting PMIs, lagging labor data, deteriorating business fundamentals and the most aggressive monetary tightening in more than 40 years. The debate between these two narratives is reflected in the current trading range that sits at technical resistance levels between 4100-4200. Breaking through 4200 likely requires fundamental justification for an emerging cyclical recovery, which seems unlikely given negative money supply growth. It seems more likely that the index forms a near-term top in this range with lower levels tracing weaker data, lower earnings estimates and tighter financial conditions. While we remain defensively positioned, we don’t yet see any technical signaling to suggest an immediate trend to lower levels.
A busy economic calendar drives incremental concerns for a pause in the disinflation trend. Retail sales are reported in nominal terms with a stronger than expected January number implying firmer prices. The February Empire State Manufacturing index also beat consensus with notable increases in prices paid and prices received, while the employment component fell into negative territory for the first time in over 2 years. More US inflation figures are on the way with January PPI and price components in the Philadelphia Fed survey due tomorrow. A number of Fed officials are also scheduled to speak tomorrow and Friday. UK CPI undershot consensus estimates, but remains elevated on a relative and absolute basis. Retailers in Europe outperform after better earnings from Carrefour, Ahold, and Kering, while shares of Barclays sell off after Q4 results fell short of expectations.