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Q1 Almost in the Books

They say time flies when you’re having fun. The question is, was it fun?

With Q1-2023 nearly in the books already, what does it mean looking forward?

It’s a tough one. On the one hand, we’re seeing banks failing (or being taken over by other banks) as stress ripples through the financial system. On the other hand, we’re seeing economic data soften… which is what the Federal Reserve Open Market Committee (FOMC) actually wants to see.

So… is it good or not?

What it is… is difficult.

With economic data softening, but inflation still running hot, the narrative is starting to shift. For the first time in (literally) years, there is talk about the end of the “Fed Put.” 

This is the idea you can buy the stock market regardless of risk because the Fed is going to backstop the market with some form of financial intervention that will limit significant losses.

The question now: is the Fed Put over?

Hard to say. Again, it’s a tale of two different perspectives. Does the Fed now do whatever it takes to hit its inflation objective, regardless of what happens in the market? Or is this a sign the Fed is structurally trapped between slowing the economy (higher rates) and stabilizing banks (stop raising rates). 

If you don’t know the answer, don’t worry – neither does the market. But this is what it’s trying to figure out.

A look at the technicals suggests we’re beginning to see signs of stabilization at these levels. The 4065-ish level of the JP Morgan hedge does appear to be a bit of a resistance area on the upside of the markets. 

Likewise, it looks like a low may have been put in place last week for the SPX. 

If this plays out as such, we should see a neutral-to-slightly-higher bias for the week.

As Q1 gets put in the rear-view mirror, Wall Street will likely re-evaluate expectations. Valuations are shifting with higher rates. But investors seem to be cheering negative news like layoffs as signs of restructuring for future profits.

It’s a bit morbid, but typically bad news isn’t necessarily bad news… provided the company is taking intentional steps to get healthier in the future.

For the week, look for support around 3877 on the SPX. And watch for stabilization in the banking sector… which, in this case, no news would be good news.

Posted 3/20/2023


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