January 23, 2023
At 4025, the S&P 500 (SPX) is currently trading above its 50, 100, 200 day moving averages and above the downward sloping trend channel that contained the bear market all of last year. Market technicians care most about closing levels, but the Volume Weighted Average Price (VWAP) for the SPY is a remaining technical hurdle that sits overhead at ~4060. While we don’t expect an imminent break above resistance, a sustained close above ~4060 would be a bullish technical development leading to accelerated upside momentum given light positioning dynamics.
Timing: Friday’s advance and this morning’s follow through come as the Fed enters its pre-meeting quiet period. Equity market rallies ease financial conditions and December Fed minutes included a lengthy discussion on ensuring that financial conditions remain tight in order to sustain disinflation. If the Fed wasn’t in a quiet period, a two day equity market rally would likely result in hawkish comments meant to curb the advance.
Macro: Most of the forward-looking growth data points to a rapidly deteriorating economic backdrop aligned with a global recession of some magnitude. Tomorrow’s flash PMIs are the first forward-looking growth inputs for January and will likely have an impact on markets. Friday’s release of core PCE for December is backward looking, but an important input for the Fed’s inflation model. Consensus is looking for YoY core PCE rate of 4.5%, but it could fall to ~3% on a three month basis with the Fed targeting ~2.5%.