Morning Notes — Q1’23
December 21, 2022
Q1’23 contains the next macro catalysts for the market on Wednesday January 4 when we get manufacturing ISM, US JOLTs job openings and FOMC minutes. Friday January 6 brings Eurozone CPI, the US Jobs Report and services ISM. December CPI due on Thursday, January 12 will be the first major report for the month with the CQ4 earnings season kicking off the next day.
The S&P 500 (SPX) faded from predetermined resistance at ~4100 and then broke below short-term support near 3900. The index is in short-term oversold territory, but a lack of meaningful catalysts over the next week should keep lid on any reflex rallies that occur. From a purely technical perspective, we expect further retracement in Q1 to the October lows near 3550. We expect the SPX will find a bottom near 3500, but the extent of the retracement will ultimately depend on incoming data and earnings. A bottom implies eventual upside with a cyclical bull market fueled by increased liquidity and easier financial conditions. Getting to that point requires a sufficient decline in inflation, deterioration of economic conditions and a sell off in risk assets to encourage a meaningful Fed pivot rather than a pause. The overall message into 2023 is one of caution, but also flexibility given very depressed sentiment and positioning dynamics.
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