The Tangled Market – by Justin Vaughn

(Justin Vaughn, Editor, Options Trading Report)

For the third straight week, the market continued ‘sour,’ with investors and traders beleaguered by a plethora of unsettling news. Apprehension gripped the market as stubborn inflation bucked Mr. Powell and the Federal Reserve. The January number [CPI] came in at 6.4%, a bit of a drop from December’s 6.5%, giving little solace to the ‘players.’ The coming release of the PCE, [Personal Consumption Expenditures], on Friday will give yet a clearer definition of how rapid prices are rising in all aspects of the economy. Indications from economists and analysts are that we should expect higher numbers, further impeding the inflation fight.

Opening a shortened week Tuesday, the market mimicked the last three, directionless and drifting aimlessly lower, with more negative news to digest. Big box retailers forecast ‘softer’ numbers for the remaining quarters of the year, multiple interest rate hikes, and techs struggling to keep momentum alive. Above all the inflation rate hikes are not getting the aforementioned results. The indices all struggled, finishing lower, with the S&P 500 falling 2%, while the Dow Jones Industrial Average dropped 700 points or 2.1%. The technology-heavy Nasdaq Composite was dramatically off 2.5%.

Wednesday’s market was quite the same, as the previous sessions, finishing even, with the Nasdaq showing a slight gain. Investors and traders after a very positive opening of 2023 have become more cautious, carefully digesting the complex inflation puzzle and worrying about the predictions of several ‘big box’ retailers as noted above. It has been a ‘whip-saw’ market the past three and a half weeks, with little definition of direction. “There’s finally getting to be some fear in the market-place,” said Mr. Mathew Tym, head of equity derivatives trading at Cantor Fitzgerald. The minutes of the Fed’s meeting indicate more resolve to ‘break’ inflation, and keep a steady course of rate hikes, of 0.25% to 0.50% to rein in inflation. And the ‘beat goes on’….

Day And Night…After finishing dismal Fall and Christmas seasons, retail sales are showing a renewed optimism, with January and early February sales up significantly. Spending has been robust since the first of the year and hopefully setting the retail stage for upcoming seasons and special occasions for 2023. Consumers’ confidence can do wonders at the cash register. The Commerce Department reported strong sales of vehicles, household goods, and dining out. The Labor Department reported jobs were added at a strong pace as unemployment hit a 52 year low. Christopher Pappas, President of The Chefs Warehouse, said, “the consumer, the business traveler is spending, we’re optimistic that that does continue.”

Sales of U.S. Homes continue to Sink…Home sales have fallen for twelve consecutive months. High mortgage rates [6.2% last week] have stymied buyers, creating a very soft real estate environment. The National Association of Realtors reported on Tuesday that January sales fell 36.9% from a year earlier. Sellers are no longer getting multiple offers, and most always are eager to accept a lesser offer, and willing to negotiate. Buyers are having a greater choice of products as available inventory is high, a paradox of just two years ago. Many buyers with available credit and willing to pay higher interest rates are finding terrific buys. Selma Hepp, chief economist at CoreLogic said, “I think the worst is behind us, [but] it really all depends on mortgage rates.” As of this writing there were signs, according to the NAR [National Association of Realtors] that the real estate market is slightly trending upward.

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Randall W. Forsyth, Writer of UP & DOWN WALL STREET, in Barron’s, “The dash for trash has hit a speed bump. Stocks faltered again this week, as the early-year rally led by rebounds in 2022’s speculative-grade losers, ran into resistance from higher expected interest-rates from the Federal Reserve in the wake of persistent inflation readings and few signs that growth is faltering.”

Mike Wilson, Morgan Stanley Chief Investment Officer, Barron’s “Price is about as disconnected from reality as it’s been during this bear market.”

Matt Patterson, Writer for… Barren’s “Russia’s war has scared the Global Economy; the invasion of Ukraine has cost the world about 1% of global gross domestic product and upended geopolitics, The risks aren’t over.”

John David Rainey, CFO of Walmart, Yahoo Finance “The consumer is still very pressured, and if you look at economic indicators, balance sheets are running thinner and savings rates are declining relative to previous periods. And so that’s why we take a pretty cautious outlook on the rest of the year,”