Over the last few days the market has seen some rotation, choppiness and consolidation. It is productive action that helps charts to develop, but it also illustrates a high level of uncertainty as market participants await macroeconomic developments.
The primary issue on deck is that the Fed will be hiking rates later this month. After the Fed minutes were released on Wednesday, the odds that the Fed will hike rates by three-quarters of a percentage point increased to 96% from 84%.
The Fed minutes are a couple weeks old and there already has been some economic slowing as well as a sharp drop in oil prices. The market hopes these developments may slow the Fed's hawkishness, but the minutes made it clear that Chairman Jerome Powell and his cohorts are determined not to back off on interest rate hikes too quickly.
Market players will be watching employment news here on Thursday and again on Friday. Some slowing would likely be helpful as it would indicate that inflation is under control. However, if it is too big of a drop, then concerns about a recession will cause problems.
In addition to these issues, strength in the dollar and the movement of oil will be key. Bonds have been indicating growing concerns about a recession, but that reversed Wednesday and the situation seems quite murky.
There have been interesting areas of momentum in the market the last few days, but the problem is that such momentum is difficult to sustain in a bear market. Biotechnology has been of particular interest, but the charts are still a mess and need more work in many cases. If the market is hit again by inflation or recession concerns, then groups such as biotechnology and growth are very likely to take hard hits.
This is a market that demands great patience while events unfold. There is no compelling technical reason to buy most stocks right now, and as we head into earnings season the fundamental risks are very high. If you are going to play, then stay very short term and wait for better charts to develop.
