Gearing Up For A Hearing Test

Articles From: Briefing.com
Website: Briefing.com

By:

Chief Market Analyst

The stock market is starting this new week on some firmer ground, comforted by the understanding that Treasury yields have cooled down and that the S&P 500 found buyer support at its 200-day moving average (3,940), which is a key technical level.

The 10-yr note yield, which hit 4.08% last Thursday, settled Friday’s session at 3.96% and it has dropped another five basis points this morning to 3.91%. In turn, the 2-yr note yield, which hit 4.95% last Thursday, settled Friday’s session at 4.86% and it has dropped another three basis points this morning to 4.83%.

China setting a more conservative than expected growth forecast of around 5.0% for 2023 has aided the follow-through buying efforts in the Treasury market, and has also contributed to a pullback in many commodity prices, yet this drop in rates is predominately technical so far.

Treasuries hurried into a short-term oversold condition themselves. At their highs last Thursday, the 2-yr note yield and 10-yr note yield were up 87 basis points and 68 basis points, respectively, from their closing levels the day before the January employment report.

That spike in rates was the catalyst for the concurrent slide in stock prices seen throughout February and into early March. Accordingly, there is a symbiosis between stocks and bonds now that is more constructive looking.

The S&P rallied 1.6% on Friday and the Nasdaq Composite surged 2.0%. There isn’t a great deal of follow-through buying interest at the moment, but more importantly, there isn’t any real selling interest either.

Currently, the S&P 500 futures are up eight points and are trading 0.2% above fair value, the Nasdaq 100 futures are up 52 points and are trading 0.5% above fair value, and the Dow Jones Industrial Average futures are up 29 points and are trading 0.1% above fair value.

Apple (AAPL), which rallied 3.5% on Friday, is a cornerstone stock from which the broader market is trying to build on its recovery effort this morning. Shares of AAPL are up 1.8% after Goldman Sachs initiated coverage of the stock with a Buy rating and price target of $199 that teases the possibility of a nearly 32% gain from the stock’s current level.

If Apple ultimately gains 32%, the broader market will presumably be in a better place than it is now.

Where the market is now, though, is roughly in the middle of a trading range (3,800-4,200) that has persisted since October. Where it goes next will depend in large part on what it hears over the course of the next few weeks.

The hearing test starts tomorrow with Fed Chair Powell’s semiannual monetary policy testimony before the Senate Banking Committee, and it will continue Friday with the release of the February Employment Situation Report before resuming with the February Consumer Price Index Report on March 14 and then wrapping up with the FOMC decision and release of updated economic projections on March 22.

It won’t be just what the market hears in those happenings, though, that drives the action. It will be what it sees in the Treasury market following those happenings.

The stock market liked what it saw in the Treasury market on Friday and likes what it continues to see today. 

Originally Posted March 6, 2023 – Gearing up for a hearing test

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