Data is King

Outlook Summary

Since the beginning of the year, we have seen growth style stocks rally and then pull

back and then rally again. Defensive sectors like Healthcare, Utilities, and Staples have

noticeably lagged. We are now coming to a crucial time of the year where the data is

either going to make or break the next few months.

Corporate earnings have held up reasonably well so far this year based on 4th quarter

results from last year. However, inflation data has not been cooperating and multiple

inflation measures have recently come down slower than expected. Employment data

has also remained quite strong, both of which indicate a Federal Reserve that may raise

rates more than the market had anticipated. The market does not like higher interest

rates, at least in the short term. There have been examples in history where the market

rallies right along with rising interest rates. For example, in 1999 the federal funds rate

was higher than it is currently, and the market was up over 20% that year. In our

opinion, the market is not worried about a certain interest rate level, the market is

worried about the uncertainty of where rates will actually end up. Whenever we get a

firm idea from the Fed of exactly where rates will end up, or when they will stop raising, I

believe the market will take a lot of comfort in that.

Key Upcoming Data

Below are the upcoming key pieces of data that will likely move the market significantly

one way or another.

3/7- Fed Chairman Powell Testifies to Senate

This will be a prelude to the Federal Reserve meeting coming up on March 15-16. His

tone regarding how many more rate increases are on the horizon as well as whether

a .50 basis point hike is on the table for the next meeting will likely move the market.

The market has begun to fear a .50 basis point hike at the next meeting. If Powell

indicates that .50 basis point raise is unlikely or not on the table, the market should like

that very much.

3/10- Employment Report

Last month’s employment report shocked the market with 517k new jobs added, which

doubled analysts’ estimates. A strong jobs number indicates the economy is still running

hot and that the employment market will likely remain tight, which will likely keep wage

inflation high. The median forecast for this report is 225k new jobs created. If the

number is significantly higher, the market will likely not respond well.

3/14- CPI

A big one....

The official estimates are not widely available yet, but this will likely be a volatile day

one way or the other depending on the data.

Additional Data Points on the Horizon

3/8- ADP Employment

3/8- Job Openings (JOLTS)

3/9- Jobless Claims

3/15- PPI (Producer Price Index)

3/16- Initial Jobless Claims

3/21-3/22- FOMC Meeting

THE Big one....

The Federal Reserve meets for two days and makes the decision on what to do with the

federal funds rate. All of the previous data we just covered will be factored into this

decision. My hunch is the FOMC will raise the federal funds rate by .25 basis points. I

believe the market will be relieved at first that they did not raise .50 basis points.

However, it will all come down to their forecast for future rate hikes and the Powell press

conference after the decision. Again, this should move the market significantly one way

or the other. This meeting will also set the tone for the weeks and months ahead.

Longer Term Outlook

As you can see, there are a lot of short-term catalysts that will likely cause short term

volatility. However, unless inflation ends up being significantly stickier than is currently

thought, we should be able to move past the Fed’s rate raising campaign sometime in

the first half of 2023. At that point, the market will refocus on corporate earnings, the

health of the economy, and the odds of a recession. At this point it is somewhat of a

guess among analysts whether we will have a recession or not. The consensus is that if

we do have a recession, it will be a mild one. If that is the case, the outlook for the

overall market is more positive than it has been in previous months and the odds of

another steep decline in the market has also become less of a consensus among

analysts.

This commentary on this article reflects the personal opinions, viewpoints and analyses of the

Element Squared Private Wealth employees providing such comments and should not be

regarded as a description of advisory services provided by Element Squared Private Wealth or

performance returns of any Element Squared Private Wealth client. The views reflected in the

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