U.S. Stocks closed higher again on Friday, 13^th January 2023, continuing their rally after the CPI report on Thursday came in line with expectations. 

Friday saw the start of earning season with the Major banks, Bank of America, Citigroup, JPMorgan, and Wells Fargo reporting results that were not as bad as was feared. 

The initial reaction was to sell their stock, but their stock prices turned positive late in the day.  

On the economic front, the University of Michigan consumer sentiment index climbed in January to its highest level in nine months, which followed December’s consumer price index data released Thursday showing prices declined slightly.  

Against this, the market is now expecting the Fed to slow down the pace of hikes or even stop altogether. 

For the week, the Nasdaq Composite surged 4.8%, while the S&P 500 jumped 2.6%, and the Dow Jones index added 2%. 

Here are the closing levels on Friday, 13^th January 2023:

	Last	Change	%Change
Dow Jones	34,302.61.	+112.64	+0.33%
S&P 500	3,999.09	+15.92.	+0.40%
Nasdaq Comp	11,079.16	+78.06	+0.71%
US 10Y	3.50%
VIX	18.35	-0.48	-2.55%

Is this the start of the big rally we talked about last week? 

The market is positioning itself for some kind of rally after 2 weeks of positive results. 

Swap markets are pricing a higher chance of a 25 basis point hike at the next Fed meeting and a small chance of zero the meeting after. 

What this tells us once again is that the market is ignoring the hawkish comments and reading into the data. The data is telling us that inflation is slowing down and that the Fed should slow down or pause even.  

At the same time, the market is also looking forward to the possibility of the Fed may start to cut rates later this year even though there is no evidence from the Fed that they will be doing so. 

So, the market is dictating what the Feds should do and is positioning itself for a rally. 

“Don’t fight the Fed” I always say but, in this case, you can fight the market. It wants to go higher, and the data is feeding the flames to make it so. 

The risk is, we get bad earnings and even worse forward guidance. 

The other risk is that the Fed is still sticking to their plan, insisting that their work is not done and will maintain high interest rate for longer. 

Higher rates for long cannot be good for markets no matter how much we want the markets to go up. 

Source: CBOE, Bloomberg 

This commentary is written by James Gomes
James has been in the finance industry for over 30 years and most recently worked for a large U.S. bank for more than 20 years.

Risk Disclosure
Trading in financial instruments involves high risks due to the fluctuation in the value and prices of the underlying financial instruments. Due to the adverse and unpredictable market movements, large losses exceeding the investor’s initial investment could incur within a short period of time. The past performance of a financial instrument is not an indication of its future performance. Investments in certain services should be made on margin or leverage, where relatively small movements in trading prices may have a disproportionately large impact on the client’s investment and the client should therefore be prepared to suffer significant losses when using such trading facilities.

Please make sure you read and fully understand the trading risks of the respective financial instrument before engaging in any transaction with Doo Prime’s trading platforms. You should seek independent professional advice if you do not understand any of the risks disclosed by us herein or any risk associated with the trade and investment of financial instruments. Please refer to Doo Prime’s Client Agreement and Risk Disclosure Statement to find out more.

[Disclaimer]
This information is addressed to the general public solely for information purposes and should not be taken as investment advice, recommendation, offer, or solicitation to buy or sell any financial instrument. The information displayed herein has been prepared without any reference or consideration to any particular recipient’s investment objectives or financial situation. Any references to the past performance of a financial instrument, index, or a packaged investment product shall not be taken as a reliable indicator of its future performance. Doo Prime and its holding company, affiliates, subsidiaries, associated companies, partners, and their respective employees, as well as managers, make no representation or warranties to the information displayed and Doo Prime and its holding company, affiliates, subsidiaries, associated companies, partners and their respective employees, as well as managers, shall not be liable for any direct, indirect, special or consequential loss or damages incurred a result of any inaccuracies or incompleteness of the information provided. Doo Prime and its holding company, affiliates, subsidiaries, associated companies, partners, and their respective employees, as well as managers, shall not be liable for any direct, indirect, special, or consequential loss or damages incurred as a result of any direct or indirect trading risks, profit, or loss arising from any individual’s or client’s investment.