Neutral. February is part of the “Best Six Months,” but it is historically the poorest performing month of the six. February ranks #8 for DJIA, #11 S&P 500 and #10 for NASDAQ. Russell 2000 tends to outperform in February most likely due to carry over of the January Effect. Midterm Februarys have historically been better, but still only mid-pack for DJIA and S&P 500.
Mixed. Initial Q4 GDP came in at a solid 6.9% annualized pace, much better than estimates. Inflation rose 7% on a year-over-year basis in December, the highest reading since June 1982 while “core” inflation was up 5.5%. Supply chain disruptions persist and are likely to continue to elevate inflation readings as demand outpaces supply. Omicron continues to spread, but the pace appears to be slowing. Earnings have been fair but the monster numbers of last year make for tough comparisons.
Correcting. DJIA, S&P 500, NASDAQ & Russell 2000 have all fallen below their respective 50- and 200-day moving averages. Russell 2000 has satisfied the 20% decline from its closing high used by many sources as the definition of a bear market, down 20.9%. NASDAQ is not far behind, down 16.8% from its November closing high through the close on January 27. S&P 500 is down 9.8% while DJIA is holding up best, down 7.2%.
0 – 0.25%. Following the first Fed meeting of 2022, QE is scheduled to end just ahead of mid-March and the first rate increase could come then as well. Our guess for rate increases would be one 0.25% increase at each meeting in March, June, September and December this year which would put Fed funds at 1-1.25% at year’s end. There has been no real rush to end QE and the Fed has tolerated year-over-year inflation above 5% since last June. This measured pace of rate increases is also rather consistent with their repeated dependency on data.
Sliding. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors have retreated to 34.9%. Correction advisors stand at 38.4% while Bearish advisors are at 26.7% as of their January 26 release. Even though this is a significant shift away from the elevated bullish levels last seen in November, overall sentiment has not yet reached levels that have historically been seen at substantial buying opportunities. When Bearish advisors begin to swell, that could indicate a bottom is near.