The Stock Market Is Tightening Into a Range as Traders Wait for More Fed News

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Stocks are squeezing into a tight range as investors weigh the risks of inflation and more interest-rate hikes.

The S&P 500 slid 0.3 percent between Friday, February 10, and Friday, February 17. It was the index’s second straight negative week after hitting a five-month high on February 2.

Last week brought apparently bearish news on inflation. Consumer prices rose slightly more than expected in January, while producer prices jumped almost twice the forecast rate. Retail sales also beat estimates by a healthy margin and initial jobless claims unexpectedly fell. That suggests the Federal Reserve has little reason to abandon its hawkish monetary policy.

“We must remain prepared to continue rate increases for a longer period than previously anticipated,” Dallas Fed President Lorie Logan said. Michelle Bowman, Patrick Harker of Philadelphia and Thomas Barkin of Richmond made similar comments. (Logan, Bowman and Harker are voting members, while Barkin is an alternate.)

Investors will get their next big dose of central bank news at 2 p.m. tomorrow, when minutes from the last Fed meeting are released.

Bond yields and the U.S. dollar climbed last week as the inflation news hit. CME’s FedWatch tool shows the market pricing in 1-2 additional interest-rate increases versus a month ago. That may heighten the importance of Wednesday’s minutes, along with subsequent headlines in coming weeks. Here are some dates to keep in mind:

  • Wednesday February 22: Fed minutes
  • Tuesday, March 7: Jerome Powell testifies on Capitol Hill
  • Friday, March 10: Non-farm payrolls
  • Tuesday, March 14: Consumer Price Index
  • Wednesday, March 22: Fed interest-rate decision and new “dot plot”

Energy Plunges

Energy stocks were the biggest movers last week, dropping more than 6 percent as crude oil kept falling. Chinese stocks and precious metals also declined as the U.S. dollar strengthened.

Retail stocks, industrial metals, small caps and airlines outperformed. That’s consistent with investors focusing on the expanding U.S. economy.

Biggest Gainers in the S&P 500 Last Week
Ecolab (ECL)+11%
Generac (GNRC)+8.7%
Analog Devices (ADI)+8%
Illumina (ILMN)+7.8%
Cisco Systems (CSCO)+7.4%
Source: TradeStation Data

Growth stocks like Airbnb (ABNB), Roku (ROKU), Palantir (PLTR) and Twilio (TWLO) jumped on strong quarterly results. They all fell sharply last year as investors shunned newer companies with higher multiples.

Cisco Systems (CSCO) was the best performer in the Dow Jones Industrial Average, rallying 7.4 percent on strong quarterly results.

S&P 500, daily chart, with key technical indicators.

Charting the Market

The S&P 500 has been in a tight range this month, pausing after a rally between October and January.

Some patterns that could be potentially bullish over the long term have appeared during this time. The 50-day moving average had a “golden cross” above the 200-day MA. Prices have remained above last year’s falling trendline and volatility has contracted. Lower energy prices could also reduce inflation.

Still, momentum has slowed recently as the moving average convergence/divergence (MACD) oscillator falls. Chart watchers looking for a pullback may view the 50-day MA around 3978 as support. Others may eye the 4015 level because it was a low for the week ended February 3 and represents a 50 percent retracement of the index’s move in 2023.

The Week Ahead

This week’s agenda brings Fed news and a few big quarterly reports.

Today’s items include existing home sales, plus earnings from Walmart (WMT) and Home Depot (HD).

Baidu (BIDU) issues results tomorrow morning. Fed minutes come at 2 p.m. Nvidia (NVDA), Etsy (ETSY) and eBay (EBAY) follow in the post market.

Biggest Decliners in the S&P 500 Last Week
Devon Energy (DVN)-16%
Apache (APA)-13%
EOG Resources (EOG)-12%
Organon (OGN)-10%
Diamondback Energy (FANG)-9.8%
Source: TradeStation Data

Thursday features revised gross domestic product and initial jobless claims. Oil inventories are also due, one day later than usual because of Presidents’ Day. Alibaba (BABA) and Block (SQ) report earnings.

Friday brings the personal consumption expenditures (PCE) inflation report and new home sales.

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