Dow Jones, Nasdaq, S&P 500 weekly preview: Fed tightening forecasts are inching up By

By Senad Karaahmetovic

Last week,10 yuan micro futures regular platform app the recorded the biggest weekly drop since early December as investors increasingly expect the Fed to continue tightening amid recent hotter-than-expected inflation data.

S&P 500 fell 2.67% with the bears securing the first weekly close below 4000 since mid-January. The index closed the week with its forward 12-month P/E ratio at 17.7, below the 5-year average (18.5) and above the 10-year average (17.2).

As expected, the rate-sensitive dropped 3.3% to close below the 200 weekly moving average, which is now expected to act as resistance.

After three weeks of hovering just above the 100 weekly moving average at 33750, the fell 3% - its largest weekly drop in more than 5 months.

As far as global flows are concerned, net flows into global equity funds were negative in the week ending February 22 (-$7 billion), compared to inflows of $0.3B in the prior week, Goldman Sachs data shows.

Looking forward to this week, the most important economic data release includes the report on Monday and the report on Wednesday. Moreover, several Fed officials are speaking this week, namely Governor (Monday), the Chicago Fed President Goolsbee (Tuesday), and Governor (Thursday).

Futures are up in Monday premarket trading with the S&P 500 trading about 20 points higher.

Fed tightening forecasts increase

On Friday, the January core PCE inflation rose 0.57% (MoM) and 4.7% on a (YoY) basis, barely slowing relative to the same period last year. Overall, U.S. consumer spending rose by the most in nearly two years amid still-strong wage growth.

“A much stronger activity and inflation backdrop in January keep us expecting that the Fed will raise rates at least to a 5.25- 5.50% range and possibly beyond,” said Citi economists.

As a result, the Fed tightening forecasts are inching up with the market now pricing in 30bp for March, including a 20% possibility the Fed hiked by 50 basis points. The market still expects to hike by 25 basis points in May while chances for another similar rate hike in June now stand at 72%.

“We would also argue that the move in yields/Fed tightening assumptions are overblown (the PCE was indeed hot, but no more so than the , , , , etc., already were for Jan – the question now is will things stay as robust in Feb? We don’t think so, especially on the employment front). However, note that Treasuries are trading lower this morning and Fed rightening assumptions are extending their gains,” Vital Knowledge analysts wrote in a note today.

Q4 earnings season nearing its end

As many as 94% of S&P 500 companies have reported actual results so far. According to FactSet, 68% of S&P 500 companies have reported a positive EPS surprise and 66% of S&P 500 companies have reported a positive revenue surprise.

Overall, the S&P 500 earnings fell 4.8% in Q4. If this becomes the actual decline for the quarter, it would mark the first year-over-year decline since Q3 2020, when the earnings growth decelerated by 5.7%.

For this quarter, 76 S&P 500 companies have issued negative EPS guidance and 21 S&P 500 companies have issued positive EPS guidance, data from FactSet shows.

We highlight some of the most important earnings reports for this week.

• (NASDAQ:) - Monday after market close;
• (NYSE:) - Tuesday premarket;
• Lowe’s (NYSE:) - Wednesday premarket;
• Salesforce (NYSE:) - Wednesday after market close;
• (NYSE:) and Kroger(NYSE:) - Thursday premarket;
• Costco (NASDAQ:), Broadcom (NASDAQ:), Dell (NYSE:), Hewlett Packard Enterprise (NYSE:) - Thursday after market close.

Investors will also pay close attention to Goldman Sachs (NYSE:) and Tesla (NASDAQ:) Investor Day events that are due this Tuesday and Wednesday, respectively.

What analysts are saying about U.S. stocks

Here are fresh comments from U.S.-focused analysts and strategists ahead of the new trading week.

Morgan Stanley: “With the equity market showing signs of exhaustion after the last Fed meeting, the S&P 500 is at critical technical support. Given our view on earnings, March is a high risk month for the bear market to resume. On the positive side, the could allow equities to make one more stand.”

Bank of America: “Now is not a time to buy the market index wholesale– inefficiencies abound. Eyeballs and resources have shifted from active equity to passive/private equity, and valuation dispersion is near record levels... We like value and cash return strategies here, and remind investors that prior to the GFC, valuation was a far better predictor of returns than price.”

Citi: “Margin degradation from here poses a downside risk that is hard to ignore. Implications of this issue may extend beyond 2023 and begs the question as to an appropriate two- to three-year earnings growth trajectory… It is difficult for us to see multiple expansion leading the market higher from here, unless were to break through their recent lows.”

Jefferies: “We remain cautious on the market, with a S&P 500 base case target of 3500 considering its stretched valuation and earnings risk… The S&P 500 index is expensive on most metrics, especially on forward P/S and EV/sales.”

Oppenheimer: “We were not surprised by the strength of the economy and stickiness of inflation in data released last week. Our view continues to be that the Fed will not pivot or pause for some time but rather remain sensitive to the effects of its policies on the economy for some time.”

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