Technically speaking, the market continues to hold up. We say that literally knowing that the S&P 500 closed Friday just above its 200-day moving average (3,940) and managed to eke out a close yesterday just above its 50-day moving average (3,979).
Yesterday’s trade, however, wasn’t an inspiring one. The S&P 500 and the other indices started the day much higher, but then spent most of the session retracing their opening steps and closed just above their lowest levels for the day.
The technical trade still seems to be driving things on this last day of February. The futures for the major indices are higher, yet their gains are modest in scope following a spate of earnings news since yesterday’s close that has been met with mixed reactions.
Target (TGT), for instance, has been in and out of positive territory in pre-market trading after topping fiscal Q4 expectations but issuing below-consensus guidance for its fiscal first quarter and full year. Shares of TGT are currently down 0.1%. Zoom Video (ZM), meanwhile, is up 5.0% following its better-than-expected results and guidance.
Currently, the S&P 500 futures are up seven points and are trading 0.2% above fair value, the Nasdaq 100 futures are up 13 points and are trading 0.1% above fair value; and the Dow Jones Industrial Average futures are up 70 points and are trading 0.2% above fair value.
Those indications will translate into a modestly higher start for the major indices, but as seen yesterday, it’s not how the market starts that matters, but how it finishes.
There was some consolation in knowing the market finished above its 50-day moving average yesterday, but there was some consternation still knowing it could not hold on to much stronger gains — and that was with Treasury yields falling back noticeably from overnight highs along the way.
Treasury yields are mixed this morning. The 2-yr note yield is unchanged at 4.80% and the 10-yr note yield is up two basis points to 3.94%. The approach to 4.00% is creating some headwinds for stocks, yet the prevailing headwind at the moment may just be the 6-month T-bill yield, which is up another five basis points to 5.14%.
The upward thrust in market rates, not just today but throughout the month, has dictated the stock market’s struggling price action in February. The 2-yr note yield is up 58 basis points this month and the 10-yr note yield is up 40 basis points.
That movement has been an offshoot of the market recalibrating its view of the Fed’s terminal rate in the wake of having received much stronger than expected economic data and a series of inflation reports that have shown inflation sticking at higher levels.
We would expect interest rate moves to continue to dictate the action as we move into March, followed closely by earnings estimate trends. Lately, that has been a toxic combination: interest rates moving up and earnings estimates coming down.
That combination so far has led to a technical knockout of the market in February. The Nasdaq Composite is down 1.0%, the S&P Midcap 400 is down 1.8%, the Russell 2000 is down 1.9%, the S&P 500 is down 2.3%, and the Dow Jones Industrial Average is down 3.5%.
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Originally Posted February 28, 2023 – Taking technical stock of the matter
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