The Biggest Threat To The Broad January Rally Is On The Table

In his Daily Market Notes report to investors, Louis Navellier wrote:

Threat To The January Rally

The Fed day has arrived; a 25 bps increase is expected and Jerome Powell’s comments will be telling.

The biggest threat to the broad January rally is on the table; will the Fed pivot in 2023 or not? So far, all the Fed rhetoric has been that they will take the Fed Fund rate to at least 5% and leave it there until inflation is well on its way to 2%.

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Both the bond and stock markets reflect something different. The biggest bulls see the Fed stopping after today and then cutting rates by early summer, based on recent inflation numbers. The bears believe the Fed is willing to take the economy into a real recession to achieve their goal and that inflation will stay above 4% for several more quarters.

We will see the increase at 2 pm today and a half hour later Jerome Powell will speak. It is likely that he will carefully walk the line between hawkish and dovish and will strive to repeat statements already made. He certainly has the room to stay the course of higher-longer given the continuing strong job market – JOLTs job openings were noticeably higher today for January than the slightly lower expected – and robust stock market.

The market sees the post-Covid reopening of China as a source of global growth in 2023, but it may also raise inflation pressures, particularly in energy and commodities. Likewise, the war in Ukraine should bring growth when it ends, but it certainly appears that it will be getting worse there first.

Even if the Fed stays the course and does increase 25bps in the next of the next 3 Fed meetings, the meetings are 6 weeks apart and the increases are much smaller than the huge increases that were put in last year.

An hour into trading the stock indexes are down modestly, much less than they were up yesterday, the VIX remains below 20, the bond markets are flat, the US dollar index is slightly lower, and commodities are flat. We wait for the Fed while we count the gains for January, the best since 2001.

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