Here’s The Asset Guidance Group Outlook for the Week Ahead… 

The inflation narrative shifts overseas this week, with the first looks at February CPI from the Eurozone, Australia, and Japan. The European Central Bank will focus on Thursday’s core consumer reading, which hasn’t fallen as sharply as the headline number suggests, and wages are still on the rise. In the U.S., last week’s FOMC minutes reinforced the “higher for longer” theme for interest rates, but a trendless market
reflects the dislocation between a resilient economy and prices falling at a much less than desired pace. This week investors will ponder if improving economic activity may trigger additional inflation pressures, with reports on durable goods orders today, ISM manufacturing on Wednesday, and ISM services at week’s end. Other notable U.S. events include pending home sales, consumer confidence, and earnings from retailers Target, Lowe’s, and Macy’s. On the international calendar, China’s official PMIs arrive late Tuesday and will help gauge how quickly the economy may be bouncing back. Bank of Japan Governor nominee Kazuo Ueda began confirmation hearings before lawmakers that continue into this week. His initial comments suggest he will be in no rush to overhaul the central bank’s ultra loose policy, potentially adding more momentum to the yen’s recent downturn. [1]

Recapping Last Week

U.S. equities skidded to their worst weekly performance this year as sticky inflation and the likelihood of higher interest rates threatened longer-term technical trends. The S&P500, Nasdaq Composite, and Russell 2000 Indexes all slumped 2.5-3.5%. Ten of 11 S&P500 sectors finished lower, with consumer discretionary diving 4.5% as retailers Walmart and Home Depot delivered weak outlooks for the year ahead. Commodity prices stumbled as recession fears escalated, with crude oil flat while copper sank 4%. Two-year U.S. Treasury note yields climbed to 4.8%, the highest since 2007 as expectations for the terminal Fed funds rate jumped to 5.25-5.5% following the inflation data. U.S. Core PCE rose 0.6% MoM in January and 4.7% YoY, a slight uptick from December’s 4.6% and the highest reading since June 2022. U.S. personal income and spending also gained more than expected in January, suggesting the path to lower inflation will likely be long and bumpy. Jobless claims continued to fall despite more layoff announcements, demonstrating persistent labor market tightness. In other news, Q4 U.S. GDP was revised down to +2.7% from +2.9% as consumer spending slowed at the end of 2022, but recent data points towards that trend reversing so far this year. U.S. existing home sales fell for a 12th straight month in January to the lowest levels since 2010, outside of the pandemic. New home sales rose for a fourth consecutive month but were still down 19.4% YoY as high mortgage rates weighed. Internationally, global PMIs bested forecasts, to the dismay of central banks, driven mainly by the surging services sector as manufacturing remained in contraction. Canada’s CPI eased more than expected in January, while Japan’s core CPI rose 4.2% YoY in January, above the prior month’s 4% and further pressuring central bank policy. Australian wages grew less than predicted, which could reduce the need for aggressive rate hikes. Finally, consumer and business sentiment improved modestly in the Eurozone as reduced energy costs due to warm weather have brightened the economic outlook. [2]

Chart of the Week:

It was a rough week in equity markets, with the S&P500 (SPX) losing 2.7% and sliding below $4,000 as well as the low from the prior week. It begs the question whether this is a longer-term trend change or a much-needed routine pullback. That is still to be seen, but for now the longer term technical trend is still intact, albeit by a thread. The 61.8% Fibonacci retracement, measured from the December low to the high earlier this month, was touched on Friday. The 161.8% extension from the high is at the same level, establishing a confluence zone and increasing confidence in that potential technical support, along with the 200-day EMA. Lastly, the daily RSI is still hovering above 40, indicating a lingering bullish trend posture. These factors point to $3,940 holding as a key technical support, but if it breaks further downside could follow. Click here to view chart. [3]

Sources: [1] [2] [3] tdainstitutional.com tdainstitutional.com; Any performance data reported by Asset Guidance Group, LLC has been grouped and reported by kwanti.com, imported from TDAmeritrade Institutional, Risk categories as scored by Grable-Lytton test and grouped by like risk tolerance levels; NOTE: individual account performance grouped solely by model classification type in terms of risk tolerance. Individual portfolios include equivalent equities exposures via like models, but many may hold additional investments like structured notes, fixed income investments such as CDs, bonds, and other individually preferred securities. 1-Week risk score denotes overall performance of all AGG client portfolios grouped together by like-risk tolerance scores not by identical investment allocations; [4] SIMON portal, FIGmarketing.com; [5] Macro Monday (tdainstitutional.com);

*All other Asset Guidance Group analysis, www.stockcharts.com; All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat,0020Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet; Chart from Indeed’s Hiring Lab.

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